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EX-10.01 - EXHIBIT 10.01 - Federal Home Loan Bank of New Yorkc16796exv10w01.htm
EX-10.02 - EXHIBIT 10.02 - Federal Home Loan Bank of New Yorkc16796exv10w02.htm
EX-31.02 - EXHIBIT 31.02 - Federal Home Loan Bank of New Yorkc16796exv31w02.htm
EX-31.01 - EXHIBIT 31.01 - Federal Home Loan Bank of New Yorkc16796exv31w01.htm
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-51397
Federal Home Loan Bank of New York
(Exact name of registrant as specified in its charter)
     
Federal   13-6400946
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
101 Park Avenue, New York, N.Y.   10178
(Address of principal executive offices)   (Zip Code)
(212) 681-6000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer þ   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares outstanding of the issuer’s common stock as of April 30, 2011 was 43,197,503.
 
 

 

 


 

FEDERAL HOME LOAN BANK OF NEW YORK
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011
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 Exhibit 10.01
 Exhibit 10.02
 Exhibit 31.01
 Exhibit 31.02
 Exhibit 32.01
 Exhibit 32.02

 

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Federal Home Loan Bank of New York
Statements of Condition — Unaudited (in thousands, except par value of capital stock)
As of March 31, 2011 and December 31, 2010
                 
    March 31, 2011     December 31, 2010  
Assets
               
Cash and due from banks (Note 3)
  $ 2,953,801     $ 660,873  
Federal funds sold
    5,093,000       4,988,000  
Available-for-sale securities, net of unrealized gains (losses) of $14,979 at March 31, 2011 and $22,965 at December 31, 2010 (Note 5)
    3,719,024       3,990,082  
Held-to-maturity securities (Note 4)
               
Long-term securities
    8,042,487       7,761,192  
Advances (Note 6)
    75,487,377       81,200,336  
Mortgage loans held-for-portfolio, net of allowance for credit losses of $6,969 at March 31, 2011 and $5,760 at December 31, 2010 (Note 7)
    1,270,891       1,265,804  
Accrued interest receivable
    250,454       287,335  
Premises, software, and equipment
    14,919       14,932  
Derivative assets (Note 15)
    24,964       22,010  
Other assets
    16,917       21,506  
 
           
 
               
Total assets
  $ 96,873,834     $ 100,212,070  
 
           
 
               
Liabilities and capital
               
 
               
Liabilities
               
Deposits (Note 8)
               
Interest-bearing demand
  $ 2,465,860     $ 2,401,882  
Non-interest bearing demand
    2,971       9,898  
Term
    43,800       42,700  
 
           
Total deposits
    2,512,631       2,454,480  
 
           
 
               
Consolidated obligations, net (Note 10)
               
Bonds (Includes $12,605,257 at March 31, 2011 and $14,281,463 at December 31, 2010 at fair value under the fair value option)
    68,529,981       71,742,627  
Discount notes (Includes $731,892 at March 31, 2011 and $956,338 at December 31, 2010 at fair value under the fair value option)
    19,507,159       19,391,452  
 
           
 
               
Total consolidated obligations
    88,037,140       91,134,079  
 
           
 
               
Mandatorily redeemable capital stock (Note 11)
    59,126       63,219  
 
               
Accrued interest payable
    230,109       197,266  
Affordable Housing Program
    135,131       138,365  
Payable to REFCORP
    18,735       21,617  
Derivative liabilities (Note 15)
    839,710       954,898  
Other liabilities
    98,225       103,777  
 
           
 
               
Total liabilities
    91,930,807       95,067,701  
 
           
 
               
Commitments and Contingencies (Notes 11, 15 and 17)
               
 
               
Capital (Note 11)
               
Capital stock ($100 par value), putable, issued and outstanding shares:
               
43,237 at March 31, 2011 and 45,290 at December 31, 2010
    4,323,664       4,528,962  
Retained earnings
    716,650       712,091  
Accumulated other comprehensive income (loss) (Note 12)
               
Net unrealized gains on available-for-sale securities
    14,979       22,965  
Non-credit portion of OTTI on held-to-maturity securities, net of accretion
    (89,271 )     (92,926 )
Net unrealized losses on hedging activities
    (11,468 )     (15,196 )
Employee supplemental retirement plans (Note 14)
    (11,527 )     (11,527 )
 
           
 
               
Total capital
    4,943,027       5,144,369  
 
           
 
               
Total liabilities and capital
  $ 96,873,834     $ 100,212,070  
 
           
The accompanying notes are an integral part of these unaudited financial statements.

 

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Federal Home Loan Bank of New York
Statements of Income — Unaudited (in thousands, except per share data)
For the three months ended March 31, 2011 and 2010
                 
    March 31,  
    2011     2010  
Interest income
               
Advances (Note 6)
  $ 158,696     $ 149,640  
Interest-bearing deposits
    966       830  
Federal funds sold
    2,546       1,543  
Available-for-sale securities (Note 5)
    8,639       5,764  
Held-to-maturity securities (Note 4)
               
Long-term securities
    71,056       98,634  
Mortgage loans held-for-portfolio (Note 7)
    15,486       16,741  
 
           
 
               
Total interest income
    257,389       273,152  
 
           
 
               
Interest expense
               
Consolidated obligations-bonds (Note 10)
    114,277       154,913  
Consolidated obligations-discount notes (Note 10)
    7,816       9,657  
Deposits (Note 8)
    470       892  
Mandatorily redeemable capital stock (Note 11)
    744       1,495  
Cash collateral held and other borrowings (Note 18)
    9        
 
           
 
               
Total interest expense
    123,316       166,957  
 
           
 
               
Net interest income before provision for credit losses
    134,073       106,195  
 
           
 
               
Provision for credit losses on mortgage loans
    1,773       709  
 
           
 
               
Net interest income after provision for credit losses
    132,300       105,486  
 
           
 
               
Other income (loss)
               
Service fees and other
    1,256       1,045  
Instruments held at fair value — Unrealized gains (losses)(Note 16)
    740       (8,419 )
 
               
Total OTTI losses
          (3,873 )
Net amount of impairment losses reclassified (from) to
               
Accumulated other comprehensive loss
    (370 )     473  
 
           
Net impairment losses recognized in earnings
    (370 )     (3,400 )
 
           
 
               
Net realized and unrealized gains (losses) on derivatives and hedging activities (Note 15)
    64,570       (363 )
Net realized gains from sale of available-for-sale securities and redemption of held-to-maturity securities (Note 4 and 5)
          708  
Losses from extinguishment of debt and other
    (51,893 )     (227 )
 
           
 
               
Total other income (loss)
    14,303       (10,656 )
 
           
 
               
Other expenses
               
Operating
    7,530       6,342  
Compensation and Benefits
    38,981       12,894  
Finance Agency and Office of Finance
    3,397       2,418  
 
           
 
               
Total other expenses
    49,908       21,654  
 
           
 
               
Income before assessments
    96,695       73,176  
 
           
 
               
Affordable Housing Program
    7,969       6,126  
REFCORP
    17,745       13,410  
 
           
 
               
Total assessments
    25,714       19,536  
 
           
 
               
Net income
  $ 70,981     $ 53,640  
 
           
 
               
Basic earnings per share (Note 13)
  $ 1.61     $ 1.09  
 
           
 
               
Cash dividends paid per share
  $ 1.46     $ 1.41  
 
           
The accompanying notes are an integral part of these unaudited financial statements.

 

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Federal Home Loan Bank of New York
Statements of Capital — Unaudited (in thousands, except per share data)
For the three months ended March 31, 2011 and 2010
                                                 
                            Accumulated                
    Capital Stock1             Other             Total  
    Class B     Retained     Comprehensive     Total     Comprehensive  
    Shares     Par Value     Earnings     Income (Loss)     Capital     Income (Loss)  
 
Balance, December 31, 2009
    50,590     $ 5,058,956     $ 688,874     $ (144,539 )   $ 5,603,291          
 
                                               
Proceeds from sale of capital stock
    3,644       364,445                   364,445          
Redemption of capital stock
    (5,944 )     (594,365 )                 (594,365 )        
Shares reclassified to mandatorily redeemable capital stock
    (14 )     (1,410 )                 (1,410 )        
Cash dividends ($1.41 per share) on capital stock
                (70,995 )           (70,995 )        
Net Income
                53,640             53,640     $ 53,640  
Net change in Accumulated other comprehensive income (loss):
                                               
Non-credit portion of OTTI on held-to-maturity securities, net of accretion
                      3,958       3,958       3,958  
Net unrealized gains on available-for-sale securities
                      14,930       14,930       14,930  
Hedging activities
                      2,132       2,132       2,132  
 
                                   
 
                                          $ 74,660  
 
                                             
Balance, March 31, 2010
    48,276     $ 4,827,626     $ 671,519     $ (123,519 )   $ 5,375,626          
 
                                     
 
                                               
Balance, December 31, 2010
    45,290     $ 4,528,962     $ 712,091     $ (96,684 )   $ 5,144,369          
 
                                               
Proceeds from sale of capital stock
    5,054       505,404                   505,404          
Redemption of capital stock
    (7,106 )     (710,604 )                 (710,604 )        
Shares reclassified to mandatorily redeemable capital stock
    (1 )     (98 )                 (98 )        
Cash dividends ($1.46 per share) on capital stock
                (66,422 )           (66,422 )        
Net Income
                70,981             70,981     $ 70,981  
Net change in Accumulated other comprehensive income (loss):
                                               
Non-credit portion of OTTI on held-to-maturity securities, net of accretion
                      3,655       3,655       3,655  
Net unrealized losses on available-for-sale securities
                      (7,986 )     (7,986 )     (7,986 )
Hedging activities
                      3,728       3,728       3,728  
 
                                   
 
                                          $ 70,378  
 
                                             
Balance, March 31, 2011
    43,237     $ 4,323,664     $ 716,650     $ (97,287 )   $ 4,943,027          
 
                                     
1   Putable stock
The accompanying notes are an integral part of these unaudited financial statements.

 

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Federal Home Loan Bank of New York
Statements of Cash Flows — Unaudited (in thousands)
For the three months ended March 31, 2011 and 2010
                 
    March 31,  
    2011     2010  
Operating activities
               
 
               
Net Income
  $ 70,981     $ 53,640  
 
           
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization:
               
Net premiums and discounts on consolidated obligations, investments, mortgage loans and other adjustments
    (13,080 )     (19,849 )
Concessions on consolidated obligations
    1,678       2,497  
Premises, software, and equipment
    1,399       1,365  
Provision for credit losses on mortgage loans
    1,773       709  
Net realized (gains) from sale of available-for-sale securities
          (708 )
Credit impairment losses on held-to-maturity securities
    370       3,400  
Change in net fair value adjustments on derivatives and hedging activities
    97,933       145,124  
Change in fair value adjustments on financial instruments held at fair value
    (740 )     8,419  
Losses from extinguishment of debt
    51,741        
Net change in:
               
Accrued interest receivable
    36,881       19,781  
Derivative assets due to accrued interest
    (6,425 )     (9,558 )
Derivative liabilities due to accrued interest
    (32,684 )     (27,425 )
Other assets
    3,851       2,560  
Affordable Housing Program liability
    (3,234 )     1,171  
Accrued interest payable
    32,954       54,380  
REFCORP liability
    (2,882 )     (10,361 )
Other liabilities
    (4,463 )     (32,257 )
 
           
Total adjustments
    165,072       139,248  
 
           
Net cash provided by operating activities
    236,053       192,888  
 
           
Investing activities
               
Net change in:
               
Interest-bearing deposits
    795,337       3,874  
Federal funds sold
    (105,000 )     320,000  
Deposits with other FHLBanks
    (62 )     22  
Premises, software, and equipment
    (1,386 )     (619 )
Held-to-maturity securities:
               
Long-term securities
               
Purchased
    (988,122 )      
Repayments
    712,634       916,331  
Available-for-sale securities:
               
Purchased
          (581,936 )
Repayments
    263,990       164,325  
Proceeds from sales
    144       32,993  
Advances:
               
Principal collected
    93,771,274       66,264,709  
Made
    (89,132,005 )     (60,622,185 )
Mortgage loans held-for-portfolio:
               
Principal collected
    78,059       49,065  
Purchased and originated
    (85,888 )     (20,106 )
Proceeds from sales of REO
    150        
Loans to other FHLBanks
               
Loans made
    (100,000 )     (27,000 )
Principal collected
    100,000       27,000  
 
           
Net cash provided by investing activities
    5,309,125       6,526,473  
 
           
The accompanying notes are an integral part of these unaudited financial statements.

 

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Federal Home Loan Bank of New York
Statements of Cash Flows — Unaudited (in thousands)
For the three months ended March 31, 2011 and 2010
                 
    March 31,  
    2011     2010  
Financing activities
               
Net change in:
               
Deposits and other borrowings 1
  $ 10,927     $ 5,238,715  
Consolidated obligation bonds:
               
Proceeds from issuance
    16,160,153       14,103,711  
Payments for maturing and early retirement
    (19,097,193 )     (15,757,412 )
Net payments on bonds transferred to other FHLBanks
    (167,381 )      
Consolidated obligation discount notes:
               
Proceeds from issuance
    41,571,744       27,155,228  
Payments for maturing
    (41,454,687 )     (38,157,604 )
Capital stock:
               
Proceeds from issuance
    505,404       364,445  
Payments for redemption / repurchase
    (710,604 )     (594,365 )
Redemption of Mandatorily redeemable capital stock
    (4,191 )     (22,512 )
Cash dividends paid 2
    (66,422 )     (70,995 )
 
           
Net cash used by financing activities
    (3,252,250 )     (7,740,789 )
 
           
Net increase (decrease) in cash and due from banks
    2,292,928       (1,021,428 )
Cash and due from banks at beginning of the period
    660,873       2,189,252  
 
           
Cash and due from banks at end of the period
  $ 2,953,801     $ 1,167,824  
 
           
 
               
Supplemental disclosures:
               
Interest paid
  $ 127,107     $ 136,535  
Affordable Housing Program payments 3
  $ 11,203     $ 4,955  
REFCORP payments
  $ 20,627     $ 23,771  
Transfers of mortgage loans to real estate owned
  $ 591     $ 377  
Portion of non-credit OTTI (gains) losses on held-to-maturity securities
  $ (370 )   $ 473  
1   Cash flows from derivatives containing financing elements were considered as a financing activity and were included in borrowing activity. Cash outflows were $107,935 and $109,565 for the three months ended 2011 and 2010.
 
2   Does not include payments to holders of mandatorily redeemable capital stock.
 
3   AHP payments = (beginning accrual — ending accrual) + AHP assessment for the period; payments represent funds released to the Affordable Housing Program.
The accompanying notes are an integral part of these unaudited financial statements.

 

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Background
The Federal Home Loan Bank of New York (“FHLBNY” or “the Bank”) is a federally chartered corporation, exempt from federal, state and local taxes except local real estate taxes. It is one of twelve district Federal Home Loan Banks (“FHLBanks”). The FHLBanks are U.S. government-sponsored enterprises (“GSEs”), organized under the authority of the Federal Home Loan Bank Act of 1932, as amended (“FHLBank Act”). Each FHLBank is a cooperative owned by member institutions located within a defined geographic district. The members purchase capital stock in the FHLBank and receive dividends on their capital stock investment. The FHLBNY’s defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The FHLBNY provides a readily available, low-cost source of funds for its member institutions. The FHLBNY does not have any wholly or partially owned subsidiaries, nor does it have an equity position in any partnerships, corporations, or off-balance-sheet special purpose entities.
The FHLBNY obtains its funds from several sources. A primary source is the issuance of FHLBank debt instruments, called consolidated obligations, to the public. The issuances and servicing of consolidated obligations are performed by the Office of Finance, a joint office of the FHLBanks. These debt instruments represent the joint and several obligations of all the FHLBanks. Additional sources of FHLBNY funding are member deposits and the issuance of capital stock. Deposits may be accepted from member financial institutions and federal instrumentalities.
Members of the cooperative must purchase FHLBNY stock according to regulatory requirements (For more information, see Note 11 — Capital Stock and Mandatorily Redeemable Capital Stock). The business of the cooperative is to provide liquidity for the members (primarily in the form of loans referred to as “advances”) and to provide a return on members’ investment in FHLBNY stock in the form of a dividend. Since the members are both stockholders and customers, the Bank operates such that there is a trade-off between providing value to them via low pricing for advances with a relatively lower dividend versus higher advances pricing with a relatively higher dividend. The FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or advance volume through low pricing.
All federally insured depository institutions, insured credit unions and insurance companies engaged in residential housing finance can apply for membership in the FHLBank in their district. All members are required to purchase capital stock in the FHLBNY as a condition of membership. A member of another FHLBank or a financial institution that is not a member of any FHLBank may also hold FHLBNY stock because of having acquired an FHLBNY member. Because the Bank operates as a cooperative, the FHLBNY conducts business with related parties in the normal course of business and considers all members and non-member stockholders as related parties in addition to the other FHLBanks. For more information, see Note 18 — Related Party Transactions.
The FHLBNY’s primary business is making collateralized advances to members is the principal factor that impacts the financial condition of the FHLBNY.
The FHLBNY is supervised and regulated by the Federal Housing Finance Agency (“Finance Agency”), which is an independent agency in the executive branch of the U.S. government. The Finance Agency’s mission statement is to provide effective supervision, regulation and housing mission oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to promote their safety and soundness, support housing finance and affordable housing, and to support a stable and liquid mortgage market. However, while the Finance Agency establishes regulations governing the operations of the FHLBanks, the Bank functions as a separate entity with its own management, employees and board of directors.
Tax Status
The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local taxation except for local real estate taxes.
Assessments
Resolution Funding Corporation (“REFCORP”) Assessments. Although the FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate taxes, it is required to make payments to REFCORP.
Congress established REFCORP in 1989 to help facilitate the U.S. government’s bailout of failed financial institutions. The REFCORP assessments are used by the U.S. Treasury to pay a portion of the annual interest expense on long-term obligations issued to finance a portion of the cost of the bailout. Principal of those long-term obligations is paid from a segregated account containing zero-coupon U.S. government obligations, which were purchased using funds that Congress directed the FHLBanks to provide for that purpose in 1989.
Each FHLBank is required to make payments to REFCORP as described above until the total amount of payments actually made is equivalent to a $300 million annual annuity, whose final maturity date is April 15, 2030. The Resolution Funding Corporation has been designated as the calculation agent for the Affordable Housing Program and REFCORP assessments. Each FHLBank provides the amount of quarterly income before Affordable Housing Program and REFCORP assessments and other information to the Resolution Funding Corporation, which then performs the calculations for each quarter end. REFCORP expense is calculated on Net income after the assessment for the Affordable Housing Program, but before the assessment for REFCORP. The Affordable Housing Program and REFCORP assessments are calculated simultaneously because of their dependence on each other. The FHLBNY accrues its REFCORP assessment on a monthly basis.

 

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However, based on anticipated payments to be made by the 12 FHLBanks through the second quarter of 2011, it is likely that the FHLBanks will satisfy their obligation to REFCORP by the end of that period and, assuming that such is the case, further payments will not be necessary after that quarter. In anticipation of the termination of their REFCORP obligation, the FHLBanks have reached an agreement to set aside, once the obligation has ended, amounts that would have otherwise been paid to REFCORP as restricted retained earnings, with the objective of increasing the earnings reserves of the FHLBanks and enhancing the safety and soundness of the FHLBank System.
Affordable Housing Program (“AHP”) Assessments. Section 10(j) of the FHLBank Act requires each FHLBank to establish an Affordable Housing Program. Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the Affordable Housing Program the greater of $100 million or 10 percent of their regulatory defined net income. Regulatory defined net income is GAAP net income before (1) interest expense related to mandatorily redeemable capital stock, and (2) the assessment for Affordable Housing Program, but after the assessment for REFCORP. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Agency. The FHLBNY accrues the AHP expense monthly.
Basis of Presentation
The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities (if applicable), and the reported amounts of income and expense during the reported periods. Although management believes these judgments, estimates, and assumptions to be appropriate, actual results may differ. The information contained in these financial statements is unaudited. In the opinion of management, normal recurring adjustments necessary for a fair presentation of the interim period results have been made.
These unaudited financial statements should be read in conjunction with the FHLBNY’s audited financial statements for the year ended December 31, 2010, included in Form 10-K filed on March 25, 2011.
Note 1. Significant Accounting Policies and Estimates.
Significant Accounting Policies and Estimates
The FHLBNY has identified certain accounting policies that it believes are significant because they require management to make subjective judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or by using different assumptions. These policies include estimating the allowance for credit losses on the advance and mortgage loan portfolios, evaluating the impairment of the Bank’s securities portfolios, estimating the liabilities for employee benefit programs, and estimating fair values of certain assets and liabilities. See Note 1 — Significant Accounting Policies and Estimates in Notes to the Financial Statements of the Federal Home Loan Bank of New York filed on Form 10-K on March 25, 2011, which contains a summary of the Bank’s significant accounting policies and estimates.
Note 2. Recently Issued Accounting Standards and Interpretations.
A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. On April 5, 2011, the FASB issued guidance that will require creditors to evaluate modifications and restructurings of receivables using a more principles-based approach, which may result in certain modifications and restructurings being considered troubled debt restructurings. The required disclosures are effective for interim and annual reporting periods beginning on or after June 15, 2011 (July 1, 2011 for the FHLBNY). The adoption of this amended guidance is likely to result in increased financial statement disclosures, but will not affect the FHLBNY’s financial condition, results of operations, or cash flows.
Note 3. Cash and Due from Banks.
Cash on hand, cash items in the process of collection, and amounts due from correspondent banks and the Federal Reserve Banks are included in cash and due from banks.
Compensating balances — The Bank maintained average required clearing balances with the Federal Reserve Banks of approximately $1.0 million as of March 31, 2011 and December 31, 2010. The Bank uses earnings credits on these balances to pay for services received from the Federal Reserve Banks.
Pass-through deposit reserves — The Bank acts as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks. Pass-through reserves deposited with Federal Reserve Banks were $48.4 million and $49.5 million as of March 31, 2011 and December 31, 2010. The Bank includes member reserve balances in Other liabilities in the Statements of Condition.

 

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Note 4. Held-to-Maturity Securities.
Held-to-maturity securities consist of mortgage- and asset-backed securities (collectively mortgage-backed securities, or “MBS”), and state and local housing finance agency bonds.
Mortgage-backed securities — The FHLBNY’s investments in MBS are predominantly government-sponsored, enterprise-issued securities, as well as investments in privately issued MBS.
State and local housing finance agency bonds — Investments in primary public and private placements of taxable obligations of state and local housing finance authorities (“HFA”) were classified as held-to-maturity.
Major Security Types
The amortized cost basis, the gross unrecognized holding gains and losses1, the fair values of held-to-maturity securities, and OTTI recognized in AOCI were as follows (in thousands):
                                                 
    March 31, 2011  
            OTTI             Gross     Gross        
    Amortized     Recognized     Carrying     Unrecognized     Unrecognized     Fair  
Issued, guaranteed or insured:   Cost     in AOCI     Value     Holding Gains     Holding Losses     Value  
Pools of Mortgages
                                               
Fannie Mae
  $ 795,299     $     $ 795,299     $ 43,750     $     $ 839,049  
Freddie Mac
    226,545             226,545       12,332             238,877  
 
                                   
Total pools of mortgages
    1,021,844             1,021,844       56,082             1,077,926  
 
                                   
 
                                               
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
                                               
Fannie Mae
    1,856,352             1,856,352       44,556             1,900,908  
Freddie Mac
    2,781,565             2,781,565       75,258             2,856,823  
Ginnie Mae
    107,456             107,456       416             107,872  
 
                                   
Total CMOs/REMICs
    4,745,373             4,745,373       120,230             4,865,603  
 
                                   
 
                                               
Commercial Mortgage-Backed Securities
                                               
Fannie Mae
    100,480             100,480             (3,763 )     96,717  
Freddie Mac
    607,346             607,346       1,726       (6,739 )     602,333  
Ginnie Mae
    44,408             44,408       1,329             45,737  
 
                                   
Total commercial mortgage-backed securities
    752,234             752,234       3,055       (10,502 )     744,787  
 
                                   
 
                                               
Non-GSE MBS
                                               
CMOs/REMICs
    256,840       (2,046 )     254,794       4,608       (795 )     258,607  
Commercial MBS
                                   
 
                                   
Total non-federal-agency MBS
    256,840       (2,046 )     254,794       4,608       (795 )     258,607  
 
                                   
 
                                               
Asset-Backed Securities
                                               
Manufactured housing (insured)
    171,066             171,066             (18,998 )     152,068  
Home equity loans (insured)
    252,301       (63,846 )     188,455       36,764       (3,078 )     222,141  
Home equity loans (uninsured)
    176,388       (23,379 )     153,009       16,948       (18,010 )     151,947  
 
                                   
Total asset-backed securities
    599,755       (87,225 )     512,530       53,712       (40,086 )     526,156  
 
                                   
 
                                               
Total MBS
  $ 7,376,046     $ (89,271 )   $ 7,286,775     $ 237,687     $ (51,383 )   $ 7,473,079  
 
                                   
 
                                               
Other
                                               
State and local housing finance agency obligations
  $ 755,712     $     $ 755,712     $ 1,277     $ (77,201 )   $ 679,788  
 
                                   
Total other
  $ 755,712     $     $ 755,712     $ 1,277     $ (77,201 )   $ 679,788  
 
                                   
 
                                               
Total Held-to-maturity securities
  $ 8,131,758     $ (89,271 )   $ 8,042,487     $ 238,964     $ (128,584 )   $ 8,152,867  
 
                                   
                                                 
    December 31, 2010  
            OTTI             Gross     Gross        
    Amortized     Recognized     Carrying     Unrecognized     Unrecognized     Fair  
Issued, guaranteed or insured:   Cost     in AOCI     Value     Holding Gains     Holding Losses     Value  
Pools of Mortgages
                                               
Fannie Mae
  $ 857,387     $     $ 857,387     $ 48,712     $     $ 906,099  
Freddie Mac
    244,041             244,041       13,316             257,357  
 
                                   
Total pools of mortgages
    1,101,428             1,101,428       62,028             1,163,456  
 
                                   
 
                                               
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
                                               
Fannie Mae
    1,637,261             1,637,261       52,935             1,690,196  
Freddie Mac
    2,790,103             2,790,103       92,746             2,882,849  
Ginnie Mae
    116,126             116,126       936             117,062  
 
                                   
Total CMOs/REMICs
    4,543,490             4,543,490       146,617             4,690,107  
 
                                   
 
                                               
Commercial Mortgage-Backed Securities
                                               
Fannie Mae
  $ 100,492     $     $ 100,492     $     $ (2,516 )   $ 97,976  
Freddie Mac
    375,901             375,901       1,031     $ (5,315 )     371,617  
Ginnie Mae
    48,747             48,747       1,857             50,604  
 
                                   
Total commercial mortgage-backed securities
    525,140             525,140       2,888     $ (7,831 )     520,197  
 
                                   
 
                                               
Non-GSE MBS
                                               
CMOs/REMICs
    294,686       (2,209 )     292,477       6,228       (916 )     297,789  
Commercial MBS
                                   
 
                                   
Total non-federal-agency MBS
    294,686       (2,209 )     292,477       6,228       (916 )     297,789  
 
                                   
 
                                               
Asset-Backed Securities
                                               
Manufactured housing (insured)
    176,592             176,592             (21,437 )     155,155  
Home equity loans (insured)
    257,889       (66,252 )     191,637       35,550       (4,316 )     222,871  
Home equity loans (uninsured)
    184,284       (24,465 )     159,819       17,780       (21,478 )     156,121  
 
                                   
Total asset-backed securities
    618,765       (90,717 )     528,048       53,330       (47,231 )     534,147  
 
                                   
 
                                               
Total MBS
  $ 7,083,509     $ (92,926 )   $ 6,990,583     $ 271,091     $ (55,978 )   $ 7,205,696  
 
                                   
 
                                               
Other
                                               
State and local housing finance agency obligations
  $ 770,609     $     $ 770,609     $ 1,434     $ (79,439 )   $ 692,604  
 
                                   
Total other
  $ 770,609     $     $ 770,609     $ 1,434     $ (79,439 )   $ 692,604  
 
                                   
 
                                               
Total Held-to-maturity securities
  $ 7,854,118     $ (92,926 )   $ 7,761,192     $ 272,525     $ (135,417 )   $ 7,898,300  
 
                                   
1   Unrecognized gross holding gains and losses represent the difference between carrying value and fair value of a held-to-maturity security. At March 31, 2011 and December 31, 2010, the FHLBNY had pledged MBS with an amortized cost basis of $2.5 million and $2.7 million to the FDIC in connection with deposits maintained by the FDIC at the FHLBNY.

 

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Unrealized Losses
The following tables summarize held-to-maturity securities with fair values below their amortized cost basis. The fair values and gross unrealized holding losses1 are aggregated by major security type and by the length of time individual securities have been in a continuous unrealized loss position as follows (in thousands):
                                                 
    March 31, 2011  
    Less than 12 months     12 months or more     Total  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
Non-MBS Investment Securities
                                               
State and local housing finance agency obligations
  $     $     $ 319,659     $ (77,201 )   $ 319,659     $ (77,201 )
 
                                   
Total Non-MBS
                319,659       (77,201 )     319,659       (77,201 )
 
                                   
MBS Investment Securities
                                               
MBS-GSE
                                               
Fannie Mae-CMBS
    96,717       (3,763 )                 96,717       (3,763 )
Freddie Mac-CMBS
    345,924       (6,739 )                 345,924       (6,739 )
 
                                   
Total MBS-GSE
    442,641       (10,502 )                 442,641       (10,502 )
 
                                   
MBS-Private-Label — CMOs
    3,705       (16 )     579,340       (76,153 )     583,045       (76,169 )
 
                                   
Total MBS
    446,346       (10,518 )     579,340       (76,153 )     1,025,686       (86,671 )
 
                                   
Total
  $ 446,346     $ (10,518 )   $ 898,999     $ (153,354 )   $ 1,345,345     $ (163,872 )
 
                                   
                                                 
    December 31, 2010  
    Less than 12 months     12 months or more     Total  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
Non-MBS Investment Securities
                                               
State and local housing finance agency obligations
  $ 20,945     $ (1,270 )   $ 309,476     $ (78,169 )   $ 330,421     $ (79,439 )
 
                                   
Total Non-MBS
    20,945       (1,270 )     309,476       (78,169 )     330,421       (79,439 )
 
                                   
MBS Investment Securities
                                               
MBS-GSE
                                               
Fannie Mae-CMBS
    97,976       (2,516 )                 97,976       (2,516 )
Freddie Mac-CMBS
    196,658       (5,315 )                 196,658       (5,315 )
 
                                   
Total MBS-GSE
    294,634       (7,831 )                 294,634       (7,831 )
 
                                   
MBS-Private-Label — CMOs
    5,017       (19 )     593,667       (87,302 )     598,684       (87,321 )
 
                                   
Total MBS
    299,651       (7,850 )     593,667       (87,302 )     893,318       (95,152 )
 
                                   
Total
  $ 320,596     $ (9,120 )   $ 903,143     $ (165,471 )   $ 1,223,739     $ (174,591 )
 
                                   
1   Unrealized losses represent the difference between amortized cost and fair value of a security. The baseline measure of unrealized losses is amortized cost, which is not adjusted for non-credit OTTI. Unrealized losses will not equal gross unrecognized losses, which is adjusted for non-credit OTTI.
Redemption terms
The amortized cost and estimated fair value of held-to-maturity securities, by contractual maturity, were as follows (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
                                 
    March 31, 2011     December 31, 2010  
    Amortized     Estimated     Amortized     Estimated  
    Cost     Fair Value     Cost     Fair Value  
State and local housing finance agency obligations
                               
Due in one year or less
  $     $     $     $  
Due after one year through five years
    6,415       6,471       6,415       6,467  
Due after five years through ten years
    61,945       60,984       61,945       60,667  
Due after ten years
    687,352       612,333       702,249       625,470  
 
                       
State and local housing finance agency obligations
    755,712       679,788       770,609       692,604  
 
                       
 
                               
Mortgage-backed securities
                               
Due in one year or less
                       
Due after one year through five years
    1,502       1,532       1,730       1,768  
Due after five years through ten years
    1,458,848       1,479,854       1,324,480       1,351,936  
Due after ten years
    5,915,696       5,991,693       5,757,299       5,851,992  
 
                       
Mortgage-backed securities
    7,376,046       7,473,079       7,083,509       7,205,696  
 
                       
 
                               
Total Held-to-maturity securities
  $ 8,131,758     $ 8,152,867     $ 7,854,118     $ 7,898,300  
 
                       

 

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Interest rate payment terms
The following table summarizes interest rate payment terms of long-term securities classified as held-to-maturity (in thousands):
                                 
    March 31, 2011     December 31, 2010  
    Amortized     Carrying     Amortized     Carrying  
    Cost     Value     Cost     Value  
Mortgage-backed securities
                               
CMO
                               
Fixed
  $ 2,917,582     $ 2,914,132     $ 3,064,470     $ 3,060,797  
Floating
    2,669,981       2,669,981       2,105,272       2,105,272  
 
                       
CMO Total
    5,587,563       5,584,113       5,169,742       5,166,069  
Pass Thru
                               
Fixed
    1,644,915       1,560,288       1,830,665       1,742,633  
Floating
    143,568       142,374       83,102       81,881  
 
                       
Pass Thru Total
    1,788,483       1,702,662       1,913,767       1,824,514  
 
                       
Total MBS
    7,376,046       7,286,775       7,083,509       6,990,583  
 
                       
State and local housing finance agency obligations
                               
Fixed
    121,442       121,442       135,344       135,344  
Floating
    634,270       634,270       635,265       635,265  
 
                       
 
    755,712       755,712       770,609       770,609  
 
                       
Total Held-to-maturity securities
  $ 8,131,758     $ 8,042,487     $ 7,854,118     $ 7,761,192  
 
                       
Impairment analysis of GSE-issued securities
The FHLBNY evaluates its individual securities issued by Fannie Mae, Freddie Mac and a government agency by considering the creditworthiness and performance of the debt securities and the strength of the GSE’s guarantees of the securities. Based on the Bank’s analysis, GSE and agency-issued securities are performing in accordance with their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. In September 2008, the U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE and agency issued securities given the current levels of collateral, credit enhancements and guarantees that exist to protect the investments.
Impairment analysis of held-to-maturity non-agency private-label mortgage- and asset-backed securities (“PLMBS”)
Management evaluates its investments for OTTI on a quarterly basis by cash flow testing 100 percent of it private-label MBS. The credit-related OTTI is recognized in earnings. The noncredit portion of OTTI, which represents fair value losses of OTTI securities, is recognized in AOCI.
Base case (best estimate) assumptions and adverse case scenarios — In evaluating its private-label MBS for OTTI, the FHLBNY develops a base case assumption about future changes in home prices, prepayments, default and loss severities. The base case assumptions are the Bank’s best estimate of the performance parameters of its private-label MBS. The assumptions are then input to an industry standard bond cash flow model that generates expected cash flows based on various security classes in the securitization structure of each private-label MBS. For more information with respect to critical estimates and assumptions about the Bank’s impairment methodologies, see Note 1 — Significant Accounting Policies and Estimates in Notes to Financial Statements of the Federal Home Loan Bank of New York on Form 10-K filed on March 25, 2011. In addition to evaluating its private-label MBS under a base case scenario, the FHLBNY also performs a cash flow analysis for each security determined to be OTTI under a more stressful performance scenario.
Third-party Bond Insurers (Monoline insurers) — Certain held-to-maturity private-label MBS owned by the FHLBNY are insured by third-party bond insurers (“monoline insurers”). The bond insurance on these investments guarantees the timely payments of principal and interest if these payments cannot be satisfied from the cash flows of the underlying mortgage pool. The FHLBNY performs cash flow credit impairment tests on all of its private-label insured securities. The analysis of MBS protected by such third-party insurance looks first to the performance of the underlying security, and considers its embedded credit enhancements in the form of excess spread, overcollateralization, and credit subordination, to determine the collectability of all amounts due. If the embedded credit enhancement protections are deemed insufficient to make timely payment of all amounts due, then the FHLBNY considers the capacity of the third-party bond insurer to cover any shortfalls.
The two primary monoline insurers, Ambac and MBIA, have been subject to adverse ratings, rating downgrades, and weakening financial performance measures. In estimating the insurers’ capacity to provide credit protection in the future to cover any shortfall in cash flows expected to be collected for securities deemed to be OTTI, the FHLBNY has developed a methodology to assess the ability of the monoline insurers to meet future insurance obligations. Predicting when bond insurers may no longer have the ability to perform under their contractual agreements is a key impairment measurement parameter which the FHLBNY continually adjusts to factor the changing operating conditions at Ambac and MBIA. Financial information, cash flows and results of operations from the two monolines are closely monitored and analyzed by the management of FHLBNY. Based on on-going analysis of Ambac and MBIA at each interim period in 2010 and at March 31, 2011, the FHLBNY management has shortened the period it believes the two monolines can continue to provide insurance support as a result of the changing operating conditions at Ambac and MBIA. For OTTI assessment, the management of the Bank has effectively excluded Ambac as a reliable provider of support for any future short-falls on securities insured by Ambac, and will not rely on support from MBIA beyond June 30, 2011 for securities insured by MBIA. The FHLBNY performs this analysis and makes a re-evaluation of the bond insurance support period quarterly.

 

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Up until March 31, 2010, Ambac had been paying claims in order to meet any current cash flow deficiency within the structure of the insured securities. On March 24, 2010, Ambac, with the consent of the Commissioner of Insurance for the State of Wisconsin (the “Commissioner”), entered into a temporary injunction to suspend payments to bond holders and to create a segregated account for bond holders, which had no effect on payments due from Ambac through March 31, 2011. As a result, payments from Ambac to trustees of certain insured bonds owned by the FHLBNY were suspended. The amounts suspended were not material.
OTTI — Quarters ended March 31, 2011 and 2010 — To assess whether the entire amortized cost basis of the Bank’s private-label MBS will be recovered, the Bank performed cash flow analysis for 100 percent of the FHLBNY’s private-label MBS outstanding in all periods in this report. Cash flow assessments identified credit impairment as reported in the following tables. Certain securities had been previously determined to be OTTI, and the additional impairment (or re-impairment) was due to further deterioration in the credit performance metrics of the securities. The non-credit portion of OTTI recorded in AOCI was not significant as the fair values of almost all securities deemed OTTI were in excess of their carrying values.
The table below summarizes the key characteristics of the securities that were deemed OTTI (in thousands):
                                                                 
    Quarter ended March 31, 2011  
    Insurer MBIA     Insurer Ambac     Uninsured     OTTI  
Security           Fair             Fair             Fair     Credit     Non-credit  
Classification   UPB     Value     UPB     Value     UPB     Value     Loss     Loss1  
 
                                                               
HEL Subprime*
  $ 30,869     $ 18,285     $     $     $     $     $ (370 )   $ 370  
 
                                               
Total
  $ 30,869     $ 18,285     $     $     $     $     $ (370 )   $ 370  
 
                                               
                                                 
    Quarter ended March 31, 2010  
    Insurer MBIA     Insurer Ambac     OTTI  
Security           Fair             Fair     Credit     Non-credit  
Classification   UPB     Value     UPB     Value     Loss     Loss1  
 
                                               
HEL Subprime*
  $ 21,637     $ 9,730     $ 45,476     $ 26,015     $ (3,400 )   $ (473 )
 
                                   
Total
  $ 21,637     $ 9,730     $ 45,476     $ 26,015     $ (3,400 )   $ (473 )
 
                                   
*   HEL Subprime — MBS supported by home equity loans.
 
1   Positive non-credit loss represents the net amount of non-credit losses reclassified from OCI to increase the carrying value of securities previously deemed OTTI.
The Bank believes no OTTI exists for the remaining investments. The Bank’s conclusion is based upon multiple factors: bond issuers’ continued satisfaction of their obligations under the contractual terms of the securities; the estimated performance of the underlying collateral; and the evaluation of the fundamentals of the issuers’ financial condition. Management has not made a decision to sell such securities at March 31, 2011, and has also concluded that it will not be required to sell such securities before recovery of the amortized cost basis of the securities. Without recovery in the near term such that spreads return to levels that reflect underlying credit characteristics, or if the credit losses of the underlying collateral within the MBS perform worse than expected, additional OTTI may be recognized in future periods.
The following table provides rollforward information about the credit component of OTTI recognized as a charge to earnings related to held-to-maturity securities (in thousands):
                 
    Quarter ended March 31,  
    2011     2010  
Beginning balance
  $ 29,138     $ 20,816  
Additions to the credit component for OTTI loss not previously recognized
           
Additional credit losses for which an OTTI charge was previously recognized
    370       3,400  
Increases in cash flows expected to be collected, recognized over the remaining life of the securities
           
 
           
Ending balance
  $ 29,508     $ 24,216  
 
           

 

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Key Base Assumptions
The table below summarizes the weighted average and range of Key Base Assumptions for all private-label MBS at March 31, 2011, including those deemed OTTI:
                                                 
    Key Base Assumption — All PLMBS at Quarter End  
    CDR     CPR     Loss Severity %  
Security Classification   Range     Average     Range     Average     Range     Average  
 
                                               
RMBS Prime
    1.0-2.8       1.4       8.2-46.1       29.7       30.0-72.1       35.3  
Alt-A
    1.0-8.3       3.7       2.0-11.6       4.2       30.0-30.0       30.0  
HEL Subprime
    1.0-11.7       3.7       2.0-10.6       4.4       30.0-100.0       69.2  
**   Conditional Prepayment Rate (CPR): 1((1-SMM)^12) where, SMM is defined as the “Single Monthly Mortality (SMM)” = (Voluntary partial and full prepayments + repurchases + Liquidated Balances)/(Beginning Principal Balance — Scheduled Principal). Voluntary prepayment excludes the liquidated balances mentioned above.
 
**   Conditional Default Rate (CDR): 1((1-MDR)^12) where, MDR is defined as the “Monthly Default Rate (MDR)” = (Beginning Principal Balance of Liquidated Loans)/(Total Beginning Principal Balance).
 
**   Loss Severity (Principal and interest in the current period) = Sum (Total Realized Loss Amount)/Sum (Beginning Principal and interest Balance of Liquidated Loans).
 
**   If the present value of cash flows expected to be collected (discounted at the security’s effective yield) is less than the amortized cost basis of the security, other-than-temporary impairment is considered to have occurred because the entire amortized cost basis of the security will not be recovered. The Bank considers whether or not it will recover the entire amortized cost of the security by comparing the present value of the cash flows expected to be collected from the security (discounted at the security’s effective yield) with the amortized cost basis of the security.
Note 5. Available-for-Sale Securities.
Major Security types — The unamortized cost, gross unrealized gains, losses, and the fair value1 of investments classified as available-for-sale were as follows (in thousands):
                                         
    March 31, 2011  
            OTTI     Gross     Gross        
    Amortized     Recognized     Unrealized     Unrealized     Fair  
    Cost     in AOCI     Gains     Losses     Value  
Cash equivalents
  $ 136     $     $     $     $ 136  
Equity funds
    6,598             327       (460 )     6,465  
Fixed income funds
    3,345             206             3,551  
GSE and U.S. Obligations
                                       
Mortgage-backed securities
                                       
CMO-Floating
    3,644,066             18,598       (3,493 )     3,659,171  
CMBS-Floating
    49,900                   (199 )     49,701  
 
                             
Total
  $ 3,704,045     $     $ 19,131     $ (4,152 )   $ 3,719,024  
 
                             
                                         
    December 31, 2010  
            OTTI     Gross     Gross        
    Amortized     Recognized     Unrealized     Unrealized     Fair  
    Cost     in AOCI     Gains     Losses     Value  
Cash equivalents
  $ 120     $     $     $     $ 120  
Equity funds
    6,715             182       (651 )     6,246  
Fixed income funds
    3,374             207             3,581  
GSE and U.S. Obligations
                                       
Mortgage-backed securities
                                       
CMO-Floating
    3,906,932             26,588       (3,157 )     3,930,363  
CMBS-Floating
    49,976                   (204 )     49,772  
 
                             
Total
  $ 3,967,117     $     $ 26,977     $ (4,012 )   $ 3,990,082  
 
                             
1   The carrying value of Available-for-sale securities equals fair value.

 

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Unrealized Losses — MBS classified as available-for-sale securities (in thousands):
                                                 
    March 31, 2011  
    Less than 12 months     12 months or more     Total  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
MBS Investment Securities
                                               
MBS — Other US Obligations
                                               
Ginnie Mae-CMOs
  $ 70,590     $ (230 )   $     $     $ 70,590     $ (230 )
MBS-GSE
                                               
Fannie Mae-CMOs
    469,133       (1,429 )                 469,133       (1,429 )
Fannie Mae-CMBS
    49,701       (199 )                 49,701       (199 )
Freddie Mac-CMOs
    436,881       (1,834 )                 436,881       (1,834 )
 
                                   
Total MBS-GSE
    955,715       (3,462 )                 955,715       (3,462 )
 
                                   
Total Temporarily Impaired
  $ 1,026,305     $ (3,692 )   $     $     $ 1,026,305     $ (3,692 )
 
                                   
                                                 
    December 31, 2010  
    Less than 12 months     12 months or more     Total  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
MBS Investment Securities
                                               
MBS — Other US Obligations
                                               
Ginnie Mae- CMOs
  $ 71,922     $ (192 )   $     $     $ 71,922     $ (192 )
MBS-GSE
                                               
Fannie Mae-CMOs
    374,535       (1,267 )                 374,535       (1,267 )
Fannie Mae-CMBS
    49,772       (204 )                 49,772       (204 )
Freddie Mac-CMOs
    368,652       (1,698 )                 368,652       (1,698 )
 
                                   
Total MBS-GSE
    792,959       (3,169 )                 792,959       (3,169 )
 
                                   
Total Temporarily Impaired
  $ 864,881     $ (3,361 )   $     $     $ 864,881     $ (3,361 )
 
                                   
Management of the FHLBNY has concluded that gross unrealized losses at March 31, 2011 and December 31, 2010, as summarized in the table above, were caused by interest rate changes, credit spreads widening and reduced liquidity in the applicable markets. The FHLBNY has reviewed the investment security holdings and determined, based on creditworthiness of the securities and including any underlying collateral and/or insurance provisions of the security, that unrealized losses in the analysis above represent temporary impairment.
Impairment analysis on Available-for-sale securities — The Bank’s portfolio of mortgage-backed securities classified as available-for-sale (“AFS”) is comprised primarily of GSE-issued collateralized mortgage obligations which are “pass through” securities. The FHLBNY evaluates its individual securities issued by Fannie Mae and Freddie Mac by considering the creditworthiness and performance of the debt securities and the strength of the government-sponsored enterprises’ guarantees of the securities. Based on the Bank’s analysis, GSE securities are performing in accordance with their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. The U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE-issued securities given the current levels of collateral, credit enhancements, and guarantees that exist to protect the investments. Management has not made a decision to sell such securities at March 31, 2011 or subsequently. Management also concluded that it is more likely than not that it will not be required to sell such securities before recovery of the amortized cost basis of the security. The FHLBNY believes that these securities were not other-than-temporarily impaired as of March 31, 2011 or at December 31, 2010.
The Bank has a grantor trust to fund current and future payments for its employee supplemental pension plans and investment in the trusts are classified as available-for-sale. The grantor trust invests in money market, equity and fixed-income and bond funds. Investments in equity and fixed-income funds are redeemable at short notice, and realized gains and losses from investments in the funds were not significant. No available-for-sale-securities had been pledged at March 31, 2011 and December 31, 2010.

 

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Redemption terms
The amortized cost and estimated fair value1 of investments classified as available-for-sale, by contractual maturity, were as follows (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
                                 
    March 31, 2011     December 31, 2010  
    Amortized     Fair     Amortized     Fair  
    Cost     Value     Cost     Value  
Mortgage-backed securities
                               
GSE/U.S. agency issued CMO
                               
Due after ten years
  $ 3,644,066     $ 3,659,171     $ 3,906,932     $ 3,930,363  
 
                       
GSE/U.S. agency issued CMBS
                               
Due after five years through ten years
    49,900       49,701       49,976       49,772  
Fixed income funds, equity funds and cash equivalents*
    10,079       10,152       10,209       9,947  
 
                       
 
                               
Total
  $ 3,704,045     $ 3,719,024     $ 3,967,117     $ 3,990,082  
 
                       
*   Determined to be redeemable at anytime.
 
1   The carrying value of Available-for-sale securities equals fair value.
Interest rate payment terms
The following table summarizes interest rate payment terms of investments classified as available-for-sale securities (in thousands):
                                 
    March 31, 2011     December 31, 2010  
    Amortized Cost     Fair Value     Amortized Cost     Fair Value  
Mortgage-backed securities
                               
Mortgage pass-throughs-GSE/U.S. agency issued
                               
Variable-rate*
  $ 3,644,066     $ 3,659,171     $ 3,906,932     $ 3,930,363  
Variable-rate CMBS*
    49,900       49,701       49,976       49,772  
 
                       
 
                               
 
    3,693,966       3,708,872       3,956,908       3,980,135  
 
                       
Fixed income funds, equity funds and cash equivalents
    10,079       10,152       10,209       9,947  
 
                       
 
                               
Total
  $ 3,704,045     $ 3,719,024     $ 3,967,117     $ 3,990,082  
 
                       
*   LIBOR Indexed
Sale of available-for-sale securities
Sales of securities and investments designated as available-for-sales were not material in all periods in this Form 10-Q.
Note 6. Advances.
Redemption terms
Contractual redemption terms and yields of advances were as follows (dollars in thousands):
                                                 
    March 31, 2011     December 31, 2010  
            Weighted2                     Weighted2        
            Average     Percentage             Average     Percentage  
    Amount     Yield     of Total     Amount     Yield     of Total  
 
Overdrawn demand deposit accounts
  $       %     %   $ 196       1.15 %     %
Due in one year or less
    17,115,800       1.61       23.67       16,872,651       1.77       21.94  
Due after one year through two years
    10,219,244       2.40       14.13       9,488,116       2.81       12.33  
Due after two years through three years
    7,910,627       2.82       10.94       7,221,496       2.94       9.39  
Due after three years through four years
    4,435,207       2.46       6.13       5,004,502       2.69       6.50  
Due after four years through five years
    7,534,259       3.10       10.42       6,832,709       2.93       8.88  
Due after five years through six years
    10,549,451       4.35       14.60       9,590,448       4.32       12.46  
Thereafter
    14,535,683       3.52       20.11       21,929,421       3.68       28.50  
 
                                   
 
                                               
Total par value
    72,300,271       2.84 %     100.00 %     76,939,539       3.03 %     100.00 %
 
                                       
 
                                               
Discount on AHP advances 1
    (36 )                     (42 )                
Hedging adjustments
    3,187,142                       4,260,839                  
 
                                           
 
                                               
Total
  $ 75,487,377                     $ 81,200,336                  
 
                                           
1   Discounts on AHP advances were amortized to interest income using the level-yield method and were not significant for all periods reported. Interest rates on AHP advances ranged from 1.25% to 3.50% at March 31, 2011 and December 31, 2010.
 
2   The weighted average yield is the weighted average coupon rates for advances, unadjusted for swaps. For floating-rate advances, the weighted average rate is the rate outstanding at the reporting dates.

 

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Monitoring and evaluating credit losses
The FHLBNY closely monitors the creditworthiness of the institutions to which it lends. The FHLBNY also closely monitors the quality and value of the assets that are pledged as collateral by its members. The FHLBNY periodically assesses the mortgage underwriting and documentation standards of its borrowing members. In addition, the FHLBNY has collateral policies and restricted lending procedures in place to manage its exposure to those members experiencing difficulty in meeting their capital requirements or other standards of creditworthiness.
The FHLBNY has not experienced any losses on advances extended to any member since its inception. The FHLBank Act affords any security interest granted to the FHLBNY by a member, or any affiliate of such member, priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party) having the rights of a lien creditor. However, the FHLBNY’s security interest is not entitled to priority over claims and rights that (1) would be entitled to priority under applicable law, or (2) are held by a bona fide purchaser for value or by parties that are secured by actual perfected security interests.
The FHLBNY’s members are required to pledge collateral to secure advances. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral which is real estate-related and has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. The FHLBNY has the right to take such steps as it deems necessary to protect its secured position on outstanding advances, including requiring additional collateral (whether or not such additional collateral would otherwise be eligible to secure a loan). The FHLBNY also has a statutory lien under the FHLBank Act on the capital stock of its members, which serves as further collateral for members’ indebtedness to the FHLBNY.
The FHLBNY has established asset classification and reserve policies. All adversely classified assets of the FHLBNY will have a reserve established for probable losses. Based upon the collateral held as security and prior repayment histories, no allowance for losses on advances is currently deemed necessary by management.
The FHLBNY uses methodologies to identify and measure credit risk arising from: creditworthiness risk arising from members, counterparties, and other entities; collateral risk arising from type, quality, and lien status; and concentration risk arising from borrower, portfolio, geographic area, industry, or product type.
Creditworthiness Risk — Advances
The FHLBNY’s potential exposure to creditworthiness risk arises from the deterioration of the financial health of FHLBNY members. The FHLBNY manages its exposure to the creditworthiness of members by monitoring their collateral and advance levels daily and by analyzing their financial health each quarter.
Collateral Risk — Advances
The FHLBNY is exposed to collateral risk if it is unable to perfect its interest in pledged collateral, or when the liquidation value of pledged collateral does not fully cover the FHLBNY’s exposure. The FHLBNY manages this risk by pricing collateral on a weekly basis, performing on-site reviews of pledged mortgage collateral from time to time, and reviewing pledged portfolio concentrations on a quarterly basis. The FHLBNY requires that members pledge a specific amount of excess collateral above the par amount of their outstanding obligations. Members provide the FHLBNY with reports of pledged collateral and the FHLBNY evaluates the eligibility and value of the pledged collateral.
The FHLBNY’s loan and collateral agreements give the FHLBNY a security interest in assets held by borrowers that is sufficient to cover their obligations to the FHLBNY. The FHLBNY may supplement this security interest by imposing additional reporting, segregation or delivery requirements on the borrower. The FHLBNY assigns specific collateral requirements to a borrower, based on a number of factors. These include, but are not limited to: (1) the borrower’s overall financial condition; (2) the degree of complexity involved in the pledging, verifying, and reporting of collateral between the borrower and the FHLBNY, especially when third-party pledges, custodians, outside service providers and pledges to other entities are involved; and (3) the type of collateral pledged.
The FHLBNY has also established collateral maintenance levels for borrower collateral that are intended to help ensure that the FHLBNY has sufficient collateral to cover credit extensions reasonable expenses arising from potential collateral liquidation and other unknown factors. Collateral maintenance levels are designated by collateral type and are periodically adjusted to reflect current market and business conditions. Maintenance levels for individual borrowers may also be adjusted based on the overall financial condition of the borrower or another, third-party entity involved in the collateral relationship with the FHLBNY. Borrowers are required to maintain an amount of eligible collateral with a liquidation value at least equal to the borrower’s current collateral maintenance level. All borrowers that pledge mortgage loans as collateral are also required to provide, on a monthly or quarterly basis, a detailed listing of mortgage loans pledged. The FHLBNY uses this detailed reporting to monitor and track payment performance of the collateral and to assess the risk profile of the pledged collateral based on mortgage characteristics, geographic concentrations and other pertinent risk factors.
Drawing on current industry standards, the FHLBNY establishes collateral valuation methodologies for each collateral type and calculates the estimated liquidation value of the pledged collateral to determine whether a borrower has satisfied its collateral maintenance requirement. The FHLBNY evaluates liquidation values on a weekly basis.
The FHLBNY makes on-site review of borrowers in connection with the evaluation of the borrowers’ pledged mortgage collateral. This review involves a qualitative assessment of risk factors that includes an examination of legal documentation, credit underwriting, and loan-servicing practices on mortgage collateral. The FHLBNY has developed the on-site review process to more accurately value each borrower’s pledged mortgage portfolio based on current secondary-market standards. The results of the review may lead to adjustments in the estimated liquidation value of pledged collateral. The FHLBNY may also make additional market value adjustments to a borrower’s pledged mortgage collateral based on the quality and accuracy of the automated data provided to the FHLBNY.

 

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Credit Risk and Concentration Risk — Advances
While the FHLBNY has never experienced a credit loss on an advance, the expanded eligible collateral for Community Financial Institutions and non-member housing associates permitted, but not required, by the Finance Agency provides the potential for additional credit risk for the FHLBNY. It is the FHLBNY’s current policy not to accept “expanded” eligible collateral from Community Financial Institutions. The management of the FHLBNY has the policies and procedures in place to appropriately manage credit risk associated with the advance business. In extending credit to a member, the FHLBNY adheres to specific credit policy limits approved by its Board of Directors. The FHLBNY has not established limits for the concentrations of specific types of advances, but management reports the activity in advances to the Board each month. Each quarter, management reports the concentrations of convertible advances made to individual members. At March 31, 2011 and December 31, 2010, all advances were current. Management does not anticipate any credit losses, and accordingly, the FHLBNY has not provided an allowance for credit losses on advances. The FHLBNY’s potential credit risk from advances is concentrated in commercial banks, savings institutions and insurance companies. At March 31, 2011 and December 31, 2010, the Bank had advances of $51.5 billion and $54.1 billion outstanding to ten member institutions, representing 71.2% and 70.3% of total advances outstanding, and sufficient collateral was held to cover the advances to these institutions.
Collateral Coverage of Advances
Security Terms. The FHLBNY lends to financial institutions involved in housing finance within its district. In addition, the FHLBNY is permitted, but not required, to accept collateral in the form of small business or agricultural loans (“expanded collateral”) from Community Financial Institutions (“CFIs”). CFIs are defined in the Housing Act as those institutions that have, as of the date of the transaction at issue, less than $1,040 million in average total assets over the three years preceding that date (subject to annual adjustment by the Finance Agency director based on the Consumer Price Index). It is the FHLBNY’s policy not to accept such expanded collateral for advances. Borrowing members pledge their capital stock of the FHLBNY as additional collateral for advances. As of March 31, 2011, the FHLBNY had rights to collateral with an estimated value greater than outstanding advances. Based upon the financial condition of the member, the FHLBNY:
  (1)   Allows a member to retain possession of the collateral assigned to the FHLBNY if the member executes a written security agreement and agrees to hold such collateral for the benefit of the FHLBNY; or
  (2)   Requires the member specifically to assign or place physical possession of such collateral with the FHLBNY or its safekeeping agent.
Beyond these provisions, Section 10(e) of the FHLBank Act affords any security interest granted by a member to the FHLBNY priority over the claims or rights of any other party. The two exceptions are claims that would be entitled to priority under otherwise applicable law or perfected security interests. All member obligations with the Bank were fully collateralized throughout their entire term. The total of collateral pledged to the Bank includes excess collateral pledged above the Bank’s minimum collateral requirements. However, a “Maximum Lendable Value” is established to ensure that the Bank has sufficient eligible collateral securing credit extensions. The Maximum Lendable Value ranges from 90 percent to 70 percent for mortgage collateral and is applied to the lesser of book or market value. For securities, it ranges from 97 percent to 67 percent and is applied to the market value. There are not any Maximum Lendable Value ranges for deposit collateral pledged. It is common for members to maintain excess collateral positions with the Bank for future liquidity needs. Based on several factors (e.g. advance type, collateral type or member financial condition) members are required to comply with specified collateral requirements, including but not limited to a detailed listing of pledged mortgage collateral and/or delivery of pledged collateral to the Bank or its designated collateral custodian(s). For example, all pledged securities collateral must be delivered to the Bank’s nominee name at Citibank, N.A., its securities safekeeping custodian. Mortgage collateral that is required to be in the Bank’s possession is typically delivered to the Bank’s Jersey City, New Jersey facility. However, in certain instances, delivery to a Bank approved custodian may be allowed. In both instances, the members provide periodic listings updating the information of the mortgage collateral in possession.
The following table summarizes pledged collateral in support of advances at March 31, 2011 and December 31, 2010 (in thousands):
Collateral Supporting Advances to Members
                                 
            Underlying Collateral for Advances  
            Mortgage     Securities and        
    Advances1     Loans2     Deposits2     Total2  
   
March 31, 2011
  $ 72,300,271     $ 100,212,737     $ 40,990,062     $ 141,202,799  
   
 
                       
December 31, 2010
  $ 76,939,539     $ 99,348,492     $ 42,461,442     $ 141,809,934  
 
                       
1   Par value
 
2   Estimated market value
The level of over-collateralization is on an aggregate basis and may not necessarily be indicative of a similar level of over-collateralization on an individual member basis. At a minimum, each member pledged sufficient collateral to adequately secure the member’s outstanding obligation with the FHLBNY. In addition, most members maintain an excess amount of pledged collateral with the FHLBNY to secure future liquidity needs.

 

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The following table summarizes pledged collateral in support of other member obligations (other than advances) at March 31, 2011 and December 31, 2010 (in thousands):
Collateral Supporting Member Obligations Other Than Advances
                                 
            Underlying Collateral for Other Obligations  
    Other     Mortgage     Securities and        
    Obligations1     Loans2     Deposits2     Total 2  
 
March 31, 2011
  $ 2,386,148     $ 7,035,254     $ 193,866     $ 7,229,120  
 
                       
 
December 31, 2010
  $ 2,057,501     $ 5,772,835     $ 213,620     $ 5,986,455  
 
                       
1   Standby financial letters of credit, derivatives and members’ credit enhancement guarantee amount. (“MPFCE”)
 
2   Estimated market value
The outstanding member obligations consisted primarily of standby letters of credit, a small amount of collateralized value of outstanding derivatives, and members’ credit enhancement guarantee amount (“MPFCE”) on loans sold to the FHLBNY through the Mortgage Partnership Finance program. The FHLBNY’s underwriting and collateral requirements for securing Letters of Credit are the same as its requirements for securing advances.
The following table shows the breakdown of collateral pledged by members between those that were specifically listed and those in the physical possession or that of its safekeeping agent (in thousands):
Location of Collateral Held
                                 
    Estimated Market Values  
    Collateral in     Collateral     Collateral     Total  
    Physical     Specifically     Pledged for     Collateral  
    Possession     Listed     AHP     Received  
March 31, 2011
  $ 46,965,149     $ 101,574,225     $ (107,455 )   $ 148,431,919  
 
                       
 
                               
December 31, 2010
  $ 48,604,470     $ 99,289,202     $ (97,283 )   $ 147,796,389  
 
                       
Total collateral pledged to the FHLBNY includes excess collateral pledged above the FHLBNY’s minimum collateral requirements. However, the amount reported under the “Total Collateral Received column excludes collateral pledged for AHP obligations.
In addition, the FHLBNY has a lien on each member’s investment in the capital stock of the FHLBNY.
Credit Risk. The FHLBNY has never experienced a credit loss on an advance. The management of the Bank has policies and procedures in place to appropriately manage credit risk. There were no past due advances and all advances were current for all periods in this report. Management does not anticipate any credit losses, and accordingly, the Bank has not provided an allowance for credit losses on advances. The Bank’s potential credit risk from advances is concentrated in commercial banks, savings institutions and insurance companies.
Concentration of advances outstanding. Advances to the FHLBNY’s top ten borrowing member institutions are reported in Note 19, Segment Information and Concentration. The FHLBNY held sufficient collateral to cover the advances to all of these institutions and it does not expect to incur any credit losses.

 

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Note 7. Mortgage Loans Held-for-Portfolio.
Mortgage Partnership Finance® program loans, or (MPF®), constitute the majority of the mortgage loans held-for-portfolio. The MPF program involves investment by the FHLBNY in mortgage loans that are purchased from its participating financial institutions (“PFIs”). The members retain servicing rights and may credit-enhance the portion of the loans participated to the FHLBNY. No intermediary trust is involved.
The following table presents information on mortgage loans held-for-portfolio (dollars in thousands):
                                 
    March 31, 2011     December 31, 2010  
            Percentage of             Percentage of  
    Amount     Total     Amount     Total  
Real Estate*:
                               
Fixed medium-term single-family mortgages
  $ 337,796       26.58 %   $ 342,081       27.05 %
Fixed long-term single-family mortgages
    932,929       73.40       918,741       72.65  
Multi-family mortgages
    279       0.02       3,799       0.30  
 
                       
 
                               
Total par value
    1,271,004       100.00 %     1,264,621       100.00 %
 
                           
 
                               
Unamortized premiums
    11,524               11,333          
Unamortized discounts
    (4,271 )             (4,357 )        
Basis adjustment 1
    (397 )             (33 )        
 
                           
 
                               
Total mortgage loans held-for-portfolio
    1,277,860               1,271,564          
Allowance for credit losses
    (6,969 )             (5,760 )        
 
                           
Total mortgage loans held-for-portfolio after allowance for credit losses
  $ 1,270,891             $ 1,265,804          
 
                           
1   Represents fair value basis of open and closed delivery commitments.
 
*   Conventional mortgages constituted the majority of mortgage loans held-for-portfolio.
Acquisitions were not significant and no loans were transferred to the “loan-for-sale” category. From time-to-time, the Bank may request a PFI to purchase loans if the loan failed to comply with the MPF loan standards and these have been de minimis in all periods in this report.
The FHLBNY and its members share the credit risk of MPF loans by structuring potential credit losses into layers (See Note 1 — Significant Accounting Policies and Estimates in the Bank’s most recent Form 10-K filed on March 25, 2011). The first layer is typically 100 basis points but this varies with the particular MPF program. The amount of the first layer, or First Loss Account (“FLA”), was estimated as $12.3 million and $12.0 million at March 31, 2011 and December 31, 2010. The FLA is not recorded or reported as a reserve for loan losses as it serves as a memorandum or information account. The FHLBNY is responsible for absorbing the first layer. The second layer is that amount of credit obligations that the PFI has taken on which will equate the loan to a double-A rating. The FHLBNY pays a Credit Enhancement fee to the PFI for taking on this obligation. The FHLBNY assumes all residual risk. Credit Enhancement fees accrued were $0.3 million and $0.4 million for the three months ended March 31, 2011 and 2010, and reported as a reduction to mortgage loan interest income. The amount of charge-offs in each period reported was insignificant and it was not necessary for the FHLBNY to recoup any losses from the PFIs.
Allowance methodology for loan losses. The Bank performs periodic reviews of individual impaired mortgage loans within the MPF loan portfolio to identify the potential for losses inherent in the portfolio and to determine the likelihood of collection of the principal and interest. Mortgage loans that are past due 90 days or more past due or classified under regulatory criteria (Sub-standard, doubtful or Loss) are evaluated separately on a loan level basis for impairment. The FHLBNY bases its provision for credit losses on its estimate of probable credit losses inherent in the impaired MPF loan. The FHLBNY computes the provision for credit losses without considering the private mortgage insurance and other accompanying credit enhancement features (except the “First Loss Account”) to provide credit assurance to the FHLBNY. If adversely classified, or past due 90 days or more, reserves for conventional mortgage loans, except FHA- and VA-insured loans, are analyzed under liquidation scenarios on a loan level basis, and identified losses are fully reserved.
When a loan is foreclosed and the Bank takes possession of real estate, the Bank will charge to the loan loss reserve account any excess of the carrying value of the loan over the net realizable value of the foreclosed loan.
FHA- and VA- insured mortgage loans have minimal inherent credit risk. Risk of such loans generally arises from servicers defaulting on their obligations. If adversely classified, the FHLBNY will have reserves established only in the event of a default of a PFI, and reserves would be based on the estimated costs to recover any uninsured portion of the MPF loan.
Classes of the MPF loan portfolio would be subject to disaggregation to the extent that it is needed to understand the exposure to credit risk arising from these loans. The FHLBNY has determined that no further disaggregation of portfolio segments is needed, other than the methodology discussed above. The FHLBNY does not evaluate MPF loans collectively.
Allowance for loan losses have been recorded against the uninsured MPF loans. All other types of mortgage-loans were insignificant and no allowances were necessary.

 

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Allowance for loan losses
The following provides a roll-forward analysis of the allowance for credit losses 1 (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
Allowance for credit losses:
               
Beginning balance
  $ 5,760     $ 4,498  
Charge-offs
    (615 )     (33 )
Recoveries
    51       5  
Provision for credit losses on mortgage loans
    1,773       709  
 
           
Ending balance
  $ 6,969     $ 5,179  
 
           
Ending balance, individually evaluated for impairment
  $ 6,969          
 
             
Recorded investment, end of period:
               
Individually evaluated for impairment
  $ 27,526          
 
             
1   The Bank does not assess impairment on a collective basis.
Non-performing loans
Non-accrual loans are reported in the table below. Mortgage loans are considered impaired when, based on current information and events, it is probable that the FHLBNY will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreements. As of March 31, 2011 and December 31, 2010, the FHLBNY had no investment in impaired mortgage loans, other than the non-accrual loans.
The following table contrasts Non-performing loans and 90 day past due loans1 to total mortgage (in thousands):
                 
    March 31, 2011     December 31, 2010  
Mortgage loans, net of provisions for credit losses
  $ 1,270,891     $ 1,265,804  
 
           
 
               
Non-performing mortgage loans
  $ 27,526     $ 26,781  
 
           
 
               
Insured MPF loans past due 90 days or more and still accruing interest
  $ 526     $ 574  
 
           
1   Includes loans classified as sub-standard, doubtful or loss under regulatory criteria.
The following table summarizes the recorded investment, the unpaid principal balance and related allowance for impaired loans (individually assessed for impairment), and the average recorded investment of impaired loans 1 & 2 (in thousands):
                                         
    March 31, 2011  
            Unpaid             Average     Interest  
    Recorded     Principal     Related     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized2  
With no related allowance:
                                       
Conventional MPF Loans1
  $ 4,218     $ 4,201     $     $ 4,598     $  
 
                             
 
  $ 4,218     $ 4,201     $     $ 4,598     $  
 
                             
With an allowance:
                                       
Conventional MPF Loans1
  $ 23,308     $ 23,324     $ 6,969     $ 22,861     $  
 
                             
 
  $ 23,308     $ 23,324     $ 6,969     $ 22,861     $  
 
                             
Total:
                                       
Conventional MPF Loans1
  $ 27,526     $ 27,525     $ 6,969     $ 27,459     $  
 
                             
 
  $ 27,526     $ 27,525     $ 6,969     $ 27,459     $  
 
                             
                                         
    December 31, 2010  
            Unpaid             Average     Interest  
    Recorded     Principal     Related     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized2  
With no related allowance:
                                       
Conventional MPF Loans1
  $ 5,876     $ 5,856     $     $ 4,867     $  
 
                             
 
  $ 5,876     $ 5,856     $     $ 4,867     $  
 
                             
With an allowance:
                                       
Conventional MPF Loans1
  $ 20,909     $ 20,925     $ 5,760     $ 18,402     $  
 
                             
 
  $ 20,909     $ 20,925     $ 5,760     $ 18,402     $  
 
                             
Total:
                                       
Conventional MPF Loans1
  $ 26,785     $ 26,781     $ 5,760     $ 23,269     $  
 
                             
 
  $ 26,785     $ 26,781     $ 5,760     $ 23,269     $  
 
                             
1   Based on analysis of the nature of risks of the Bank’s investments in MPF loans, including its methodologies for identifying and measuring impairment, the management of the FHLBNY has determined that presenting such loans as a single class is appropriate.
 
2   Insured loans were not considered impaired. The Bank does not recognize interest received as income from uninsured loans past due 90-days or greater.

 

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Mortgage loans — Interest on Non-performing loans
The FHLBNY’s interest contractually due and actually received for non-performing loans were as follows (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
Interest contractually due 1
  $ 407     $ 310  
Interest actually received
    372       279  
 
           
 
Shortfall
  $ 35     $ 31  
 
           
1   The Bank does not recognize interest received as income from uninsured loans past due 90-days or greater.
Recorded investments 1 in MPF loans that were past due loans and real-estate owned are summarized below (in thousands):
                                                 
    March 31, 2011     December 31, 2010  
    Conventional     Insured     Other     Conventional     Insured     Other  
    MPF Loans     Loans     Loans     MPF Loans     Loans     Loans  
Mortgage loans:
                                               
Past due 30 - 59 days
  $ 22,773     $ 767     $     $ 19,651     $ 768     $  
Past due 60 - 89 days
    6,011       112             6,437       207        
Past due 90 days or more
    27,526       530             26,785       577        
 
                                   
Total past due
    56,310       1,409             52,873       1,552        
 
                                   
Total current loans
    1,220,268       4,865       279       1,214,725       4,119       3,799  
 
                                   
Total mortgage loans
  $ 1,276,578     $ 6,274     $ 279     $ 1,267,598     $ 5,671     $ 3,799  
 
                                   
Other delinquency statistics:
                                               
Loans in process of foreclosure, included above
  $ 16,976     $ 325     $     $ 14,615     $ 284     $  
 
                                   
Serious delinquency rate
    2.21 %     8.40 %     %     2.14 %     10.11 %     %
 
                                   
Serious delinquent loans total used in calculation of serious delinquency rate
  $ 28,214     $ 527     $     $ 27,112     $ 573     $  
 
                                   
Past due 90 days or more and still accruing interest
  $     $ 527     $     $     $ 573     $  
 
                                   
Loans on non-accrual status
  $ 27,526     $     $     $ 26,785     $     $  
 
                                   
Troubled debt restructurings
  $     $     $     $     $     $  
 
                                   
Real estate owned
  $ 670                     $ 600                  
 
                                           
1   Recorded investments include accrued interest receivable and would not equal reported carrying values.
Certain comparative data were reclassified to conform to the presentation adopted as of March 31, 2011, and had no impact on the financial conditions, results of operations or cash flows since the reclassification impacted disclosures only.
Note 8. Deposits.
The FHLBNY accepts demand, overnight and term deposits from its members. A member that services mortgage loans may deposit in the FHLBNY funds collected in connection with the mortgage loans, pending disbursement of such funds to the owners of the mortgage loans.
The following table summarizes term deposits (in thousands):
                 
    March 31, 2011     December 31, 2010  
 
Due in one year or less
  $ 43,800     $ 42,700  
 
           
 
               
Total term deposits
  $ 43,800     $ 42,700  
 
           
Note 9. Borrowings.
Securities sold under agreements to repurchase
The FHLBNY did not have any securities sold under agreement to repurchase as of March 31, 2011 and December 31, 2010. Terms, amounts and outstanding balances of borrowings from other Federal Home Loan Banks are described under Note 18 — Related Party Transactions.
Note 10. Consolidated Obligations.
Consolidated obligations are the joint and several obligations of the FHLBanks and consist of bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of Finance as their fiscal agent. Consolidated bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity. Consolidated discount notes are issued primarily to raise short-term funds. Discount notes sell at less than their face amount and are redeemed at par value when they mature.
Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying assets equal to the consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations, participations, mortgages, or other securities of or issued by the United States or an agency of the United States; and securities in which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is located.

 

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The FHLBNY met the qualifying unpledged asset requirements as follows:
                 
    March 31, 2011     December 31, 2010  
Percentage of unpledged qualifying assets to consolidated obligations
    110 %     110 %
 
           
The following summarizes consolidated obligations issued by the FHLBNY and outstanding at March 31, 2011 and December 31, 2010 (in thousands):
                 
    March 31, 2011     December 31, 2010  
 
               
Consolidated obligation bonds-amortized cost
  $ 68,050,887     $ 71,114,070  
Fair value basis adjustments
    473,369       622,593  
Fair value basis on terminated hedges
    468       501  
FVO-valuation adjustments and accrued interest
    5,257       5,463  
 
           
 
               
Total Consolidated obligation-bonds
  $ 68,529,981     $ 71,742,627  
 
           
 
               
Discount notes-amortized cost
  $ 19,504,022     $ 19,388,317  
FVO-valuation adjustments and remaining accretion
    3,137       3,135  
 
           
 
               
Total Consolidated obligation-discount notes
  $ 19,507,159     $ 19,391,452  
 
           
Redemption Terms of consolidated obligation bonds
The following is a summary of consolidated bonds outstanding by year of maturity (dollars in thousands):
                                                 
    March 31, 2011     December 31, 2010  
            Weighted                     Weighted        
            Average     Percentage             Average     Percentage  
Maturity   Amount     Rate 1     of Total     Amount     Rate 1     of Total  
 
One year or less
  $ 32,657,200       0.82 %     48.09 %   $ 33,302,200       0.91 %     46.91 %
Over one year through two years
    13,108,225       1.38       19.30       17,037,375       1.12       24.00  
Over two years through three years
    10,607,250       2.12       15.62       9,529,950       2.21       13.43  
Over three years through four years
    4,060,080       2.65       5.98       3,689,355       2.82       5.20  
Over four years through five years
    3,777,300       2.32       5.56       4,001,400       2.36       5.64  
Over five years through six years
    573,700       3.22       0.85       462,500       3.34       0.65  
Thereafter
    3,121,315       3.91       4.60       2,959,200       4.04       4.17  
 
                                   
 
                                               
 
    67,905,070       1.49 %     100.00 %     70,981,980       1.46 %     100.00 %
 
                                       
 
                                               
Bond premiums
    176,028                       163,830                  
Bond discounts
    (30,211 )                     (31,740 )                
Fair value basis adjustments
    473,369                       622,593                  
Fair value basis adjustments on terminated hedges
    468                       501                  
FVO-valuation adjustments and accrued interest
    5,257                       5,463                  
 
                                           
 
                                               
 
  $ 68,529,981                     $ 71,742,627                  
 
                                           
1   Weighted average rate represents the weighted average coupons of bonds, unadjusted for swaps. The weighted average coupon of bonds outstanding at March 31, 2011 and December 31, 2010 represent contractual coupons payable to investors.
Amortization of bond premiums and discounts resulted in net reduction of interest expense of $12.7 million and $7.2 million for the three months ended March 31, 2011 and 2010. Amortization of basis adjustments from terminated hedges were $1.0 million and $1.6 million, and were recorded as an expense for the three months ended March 31, 2011 and 2010.
In the three months ended March 31, 2011, the Bank transferred and retired $478.6 million of consolidated obligation bonds, resulting in a charge to Net income of $52.0 million. The transfers and retirements were at negotiated market rates. There were no retirements and transfers of debt in the same period in 2010.

 

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Discount Notes
Consolidated discount notes are issued to raise short-term funds. Discount notes are consolidated obligations with original maturities of up to one year. These notes are issued at less than their face amount and redeemed at par when they mature. The FHLBNY’s outstanding consolidated discount notes were as follows (dollars in thousands):
                 
    March 31, 2011     December 31, 2010  
 
               
Par value
  $ 19,509,575     $ 19,394,503  
 
           
 
               
Amortized cost
  $ 19,504,022     $ 19,388,317  
Fair value option valuation adjustments
    3,137       3,135  
 
           
 
               
Total
  $ 19,507,159     $ 19,391,452  
 
           
 
               
Weighted average interest rate
    0.11 %     0.16 %
 
           
Note 11. Capital Stock and Mandatorily Redeemable Capital Stock.
The FHLBanks, including the FHLBNY, have a cooperative structure. To access FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in FHLBNY. A member’s stock requirement is generally based on its use of FHLBNY products, subject to a minimum membership requirement, as prescribed by the FHLBank Act and the FHLBNY Capital Plan. FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of $100 per share. It is not publicly traded. An option to redeem capital stock that is greater than a member’s minimum requirement is held by both the member and the FHLBNY.
Under the Gramm-Leach-Bliley Act of 1999 (“GLB Act”) and the Finance Agency’s capital regulations, the FHLBNY’s Capital Plan offers two sub-classes of Class B capital stock, Class B1 and Class B2. Class B1 stock is issued to meet membership stock purchase requirements. Class B2 stock is issued to meet activity-based requirements. The FHLBNY requires member institutions to maintain Class B1 stock based on a percentage of the member’s mortgage-related assets and Class B2 stock-based on a percentage of advances and acquired member assets outstanding with the FHLBank and certain commitments outstanding with the FHLBank. Class B1 and Class B2 stockholders have the same voting rights and dividend rates.
Members can redeem Class A stock by giving six months’ notice, and redeem Class B stock by giving five years notice. Only “permanent” capital, defined as retained earnings and Class B stock, satisfies the FHLBank risk-based capital requirement. In addition, the GLB Act specifies a 5.0 percent minimum leverage ratio based on total capital and a 4.0 percent minimum capital ratio. The latter ratio does not include the 1.5 weighting factor applicable to the permanent capital used in determining compliance with the 5.0 percent minimum leverage ratio.
Capital Plan under GLB Act
The FHLBNY implemented its current capital plan on December 1, 2005 through the issuance of Class B stock. The conversion was considered a capital exchange and was accounted for at par value. Members’ capital stock held immediately prior to the conversion date was automatically exchanged for an equal amount of Class B Capital Stock, comprised of Membership Stock (referred to as “Subclass B1 Stock”) and Activity-Based Stock (referred to as “Subclass B2 Stock”).
Any member that withdraws from membership must wait five years from the divestiture date for all capital stock that is held as a condition of membership, unless the institution has cancelled its notice of withdrawal prior to that date and before being readmitted to membership in any FHLBank. Commencing in 2008, the Bank at its discretion may repay a non-member’s membership stock before the end of the five-year waiting period.
The FHLBNY is subject to risk-based capital rules. Specifically, the FHLBNY is subject to three capital requirements under its capital plan. First, the FHLBNY must maintain at all times permanent capital in an amount at least equal to the sum of its credit risk, its market risk, and operations risk capital requirements calculated in accordance with the FHLBNY policy, rules, and regulations of the Finance Agency. Only permanent capital, defined as Class B stock and retained earnings, satisfies this risk-based capital requirement. The Finance Agency may require the FHLBNY to maintain an amount of permanent capital greater than what is required by the risk-based capital requirements. In addition, the FHLBNY is required to maintain at least a 4.0% total capital-to-asset ratio and at least a 5.0% leverage ratio at all times. The leverage ratio is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 time divided by total assets. The FHLBNY was in compliance with the aforementioned capital rules and requirements for all periods presented.
The FHLBNY’s Capital Plan allows the Bank to recalculate the membership stock purchase requirement any time after 30 days subsequent to a merger. The Capital Plan also permits the FHLBNY to use a zero mortgage asset base in performing the calculation, which recognizes the fact that the corporate entity that was once its member no longer exists. The Capital Plan would allow the FHLBNY to determine that all of the membership stock formerly held by the member becomes excess stock, which would give the FHLBNY the discretion, but not the obligation, to repurchase that stock prior to the expiration of the five-year notice period.

 

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Capital Standards
The GLB Act specifies that the FHLBanks must meet certain minimum capital standards, including the maintenance of a minimum level of permanent capital sufficient to cover the credit, market, and operations risks to which the FHLBanks are subject. The FHLBNY must maintain: (1) a total capital ratio of at least 4.0%; (2) a leverage capital ratio of at least 5.0%; and (3) permanent capital in an amount equal to or greater than the “risk-based capital requirement” specified in the Finance Agency’s regulations. The capital requirements are described in greater detail below.
The total capital ratio is the ratio of the FHLBNY’s total capital to its total assets. Total capital is the sum of: (1) capital stock; (2) retained earnings; (3) the general allowance for losses (if any); and (4) such other amounts (if any) that the Finance Agency may decide are appropriate to include. Finance Agency regulations require that the FHLBNY maintain a minimum total capital ratio of 4.0%.
The leverage ratio is the weighted ratio of total capital to total assets. For purposes of determining this weighted average ratio, total capital is computed by multiplying the FHLBNY’s permanent capital by 1.5 and adding to this product all other components of total capital. Finance Agency regulations require that the FHLBNY maintain a minimum leverage ratio of 5.0%.
The Finance Agency has established criteria for each of the following capital classifications, based on the amount and type of capital held by an FHLBank: adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. This regulation defines critical capital levels for the FHLBanks, establishes the criteria for each of the capital classifications identified in the Housing Act and implements the Finance Agency’s prompt correction action authority over the FHLBanks. On July 20, 2009, the Finance Agency published Advisory Bulletin 2009-AB-01, which identified preliminary FHLBank capital classifications as a form of supervisory correspondence that should be treated by an FHLBank as unpublished information. Under this Advisory Bulletin, preliminary FHLBank capital classifications should be publicly disclosed only if the information is material to that FHLBank’s financial condition and business operations, provided that the disclosure is limited to a recital of the factual content of the unpublished information. (See Note 14 to the audited financial statements filed on March 25, 2011).
The FHLBNY met the “adequately capitalized” classification, which is the highest rating, under the Capital Rule. However, the Finance Agency has discretion to reclassify an FHLBank and to modify or add to the corrective action requirements for a particular capital classification.
Risk-based capital
The following table summarizes the Bank’s risk-based capital ratios (dollars in thousands):
                                 
    March 31, 2011     December 31, 2010  
    Required4     Actual     Required4     Actual  
Regulatory capital requirements:
                               
Risk-based capital1
  $ 548,640     $ 5,099,440     $ 538,917     $ 5,304,272  
Total capital-to-asset ratio
    4.00 %     5.27 %     4.00 %     5.30 %
Total capital2
  $ 3,874,953     $ 5,106,409     $ 4,008,483     $ 5,310,032  
Leverage ratio
    5.00 %     7.90 %     5.00 %     7.95 %
Leverage capital3
  $ 4,843,692     $ 7,656,129     $ 5,010,604     $ 7,962,168  
1   Actual “Risk-based capital” is capital stock and retained earnings plus mandatorily redeemable capital stock. Section 932.2 of the Finance Agency’s regulations also refers to this amount as “Permanent Capital.”
 
2   Required “Total capital” is 4.0% of total assets. Actual “Total capital” is Actual “Risk-based capital” plus allowance for credit losses. Does not include reserves for the Lehman Brothers receivable which is a specific reserve.
 
3   Actual “Leverage capital” is Actual “Risk-based capital” times 1.5 plus allowance for loan losses.
 
4   Required minimum.
Mandatorily redeemable capital stock
Generally, the FHLBNY’s capital stock is redeemable at the option of either the member or the FHLBNY subject to certain conditions, including the provisions under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity.
In accordance with the accounting guidance for certain financial instruments with characteristics of both liabilities and equity, the FHLBNY generally reclassifies the stock subject to redemption from equity to a liability once a member: irrevocably exercises a written redemption right; gives notice of intent to withdraw from membership; or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership. Under such circumstances, the member shares will then meet the definition of a mandatorily redeemable financial instrument and are reclassified to a liability at fair value. Dividends on member shares are accrued and also classified as a liability in the Statements of Condition and reported as interest expense in the Statements of Income. The repayment of these mandatorily redeemable financial instruments, once settled, is reflected as financing cash outflows in the Statements of Cash Flows.
If a member cancels its notice of voluntary withdrawal, the FHLBNY will reclassify the mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock will no longer be classified as interest expense.

 

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Anticipated redemptions of mandatorily redeemable capital stock were as follows (in thousands):
                 
    March 31, 2011     December 31, 2010  
 
Redemption less than one year
  $ 37,418     $ 27,875  
Redemption from one year to less than three years
    4,959       17,019  
Redemption from three years to less than five years
    459       2,035  
Redemption after five years or greater
    16,290       16,290  
 
           
 
               
Total
  $ 59,126     $ 63,219  
 
           
Anticipated redemptions assume the Bank will follow its current practice of daily redemption of capital in excess of the amount required to support advances. Commencing January 1, 2008, the Bank has exercised its discretionary authority provided under its Capital Plan to also redeem non-members’ membership stock.
Voluntary withdrawal from membership — As of March 31, 2011, one member had formally notified the Bank of its intent to withdraw from membership and voluntarily redeem its capital stock. There was one termination from membership due to insolvency for the three months ended March 31, 2011. In the same period in 2010, two members became non-members due to insolvency.
Members acquired by non-members — No member became a non-member during the three months ended March 31, 2011 and in the same period in 2010. When a member is acquired by a non-member, the FHLBNY reclassifies stock of the member to a liability on the day the member’s charter is dissolved. Under existing practice, the FHLBNY repurchases stock held by former members if such stock is considered “excess” and is no longer required to support outstanding advances. Membership stock held by former members is reviewed and repurchased annually.
The following table provides roll-forward information with respect to changes in mandatorily redeemable capital stock liabilities (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
 
Beginning balance
  $ 63,219     $ 126,294  
Capital stock subject to mandatory redemption reclassified from equity
    98       1,410  
Redemption of mandatorily redeemable capital stock 1
    (4,191 )     (22,512 )
 
           
 
               
Ending balance
  $ 59,126     $ 105,192  
 
           
 
               
Accrued interest payable
  $ 847     $ 1,495  
 
           
1   Redemption includes repayment of excess stock.
(The annualized accrual rates were 5.80% for March 31, 2011 and 5.60% for March 31, 2010.)
Note 12. Total Comprehensive Income.
Total comprehensive income is comprised of Net income and Accumulated other comprehensive income (loss) (“AOCI”), which includes unrealized gains and losses on available-for-sale securities, cash flow hedging activities, employee supplemental retirement plans, and the non-credit portion of OTTI on HTM securities. Changes in AOCI and total comprehensive income were as follows for the three months ended March 31, 2011 and 2010 (in thousands):
                                                                 
            Non-credit     Reclassification                     Accumulated                
    Available-     OTTI on HTM     of Non-credit     Cash     Supplemental     Other             Total  
    for-sale     Securities,     OTTI to     Flow     Retirement     Comprehensive     Net     Comprehensive  
    Securities     Net of accretion     Net Income     Hedges     Plans     Income (Loss)     Income     Income  
Balance, December 31, 2009
    (3,409 )     (113,562 )     2,992       (22,683 )     (7,877 )     (144,539 )                
 
                                                               
Net change
    14,930       2,363       1,595       2,132             21,020     $ 53,640     $ 74,660  
 
                                               
 
                                                               
Balance, March 31, 2010
  $ 11,521     $ (111,199 )   $ 4,587     $ (20,551 )   $ (7,877 )   $ (123,519 )                
 
                                                   
 
                                                               
Balance, December 31, 2010
    22,965       (101,560 )     8,634       (15,196 )     (11,527 )     (96,684 )                
 
                                                               
Net change
    (7,986 )     3,285       370       3,728             (603 )   $ 70,981     $ 70,378  
 
                                               
 
                                                               
Balance, March 31, 2011
  $ 14,979     $ (98,275 )   $ 9,004     $ (11,468 )   $ (11,527 )   $ (97,287 )                
 
                                                   

 

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Note 13. Earnings Per Share of Capital.
The following table sets forth the computation of earnings per share (dollars in thousands except per share amounts):
                 
    Three months ended March 31,  
    2011     2010  
 
Net income
  $ 70,981     $ 53,640  
 
           
 
               
Net income available to stockholders
  $ 70,981     $ 53,640  
 
           
 
               
Weighted average shares of capital
    44,733       50,372  
Less: Mandatorily redeemable capital stock
    (592 )     (1,084 )
 
           
Average number of shares of capital used to calculate earnings per share
    44,141       49,288  
 
           
 
               
Basic earnings per share
  $ 1.61     $ 1.09  
 
           
Basic and diluted earnings per share of capital are the same. The FHLBNY has no dilutive potential common shares or other common stock equivalents.
Note 14. Employee Retirement Plans.
The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (“DB Plan”). The DB Plan is a tax-qualified multiple-employer defined benefit pension plan that covers all officers and employees of the Bank. For accounting purposes, the DB Plan is a multi-employer plan and does not segregate its assets, liabilities, or costs by participating employer. The Bank also participates in the Pentegra Defined Contribution Plan for Financial Institutions, a tax-qualified defined contribution plan. The Bank’s contributions are a matching contribution equal to a percentage of voluntary employee contributions, subject to certain limitations.
In addition, the Bank maintains a Benefit Equalization Plan (“BEP”) that restores defined benefits and contribution benefits to those employees who have had their qualified defined benefit and defined contribution benefits limited by IRS regulations. The contribution component of the BEP is a supplemental defined contribution plan. The plan’s liability consists of the accumulated compensation deferrals and accrued interest on the deferrals. The BEP is an unfunded plan. The Bank has a grantors trust to meet future benefit obligations and current payments to beneficiaries in the supplemental pension plans. The Bank also offers a Retiree Medical Benefit Plan, which is a postretirement health benefit plan. There are no funded plan assets that have been designated to provide postretirement health benefits.
Retirement Plan Expenses Summary
The following table presents employee retirement plan expenses for the three months ended March 31, 2011 and 2010 (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
 
Defined Benefit Plan
  $ 26,467     $ 1,312  
Benefit Equalization Plan (defined benefit)
    695       570  
Defined Contribution Plan
    351       235  
Postretirement Health Benefit Plan
    285       281  
 
           
 
               
Total retirement plan expenses
  $ 27,798     $ 2,398  
 
           
In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan to eliminate a funding shortfall. Prior to the contribution, the DB Plan’s adjusted funding target attainment percentage (“AFTAP”) was 79.93% (80%). The AFTAP equals DB Plan assets divided by plan liabilities. Under the Pension Protection Act of 2006 (“PPA”), if the AFTAP in any future year is less than 80%, then the DB Plan will be restricted in its ability to provided increased benefits and /or lump sum distributions. If the AFTAP in any future year is less than 60%, then benefit accruals will be frozen. The contribution to the DB Plan was charged to Net income for the three months ended March 31, 2011. Subsequent to the contribution, the AFTAP was about 96%.
Components of the net periodic pension cost for the defined benefit component of the BEP, an unfunded plan, were as follows (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
Service cost
  $ 165     $ 163  
Interest cost
    323       279  
Amortization of unrecognized prior service cost
    (13 )     (17 )
Amortization of unrecognized net loss
    220       145  
 
           
 
               
Net periodic benefit cost
  $ 695     $ 570  
 
           

 

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Key assumptions and other information for the actuarial calculations to determine current period’s benefit obligations for the BEP plan were as follows (dollars in thousands):
                 
    March 31, 2011     December 31, 2010  
 
               
Discount rate *
    5.35 %     5.35 %
Salary increases
    5.50 %     5.50 %
Amortization period (years)
    8       8  
Benefits paid during the period
  $ (1,006 )**   $ (515 )
*   The discount rate was based on the Citigroup Pension Liability Index at December 31, 2010 and adjusted for duration.
 
**   Forecast for the entire year.
Postretirement Health Benefit Plan
The FHLBNY has a postretirement health benefit plan for retirees called the Retiree Medical Benefit Plan. Employees over the age of 55 are eligible provided they have completed ten years of service after age 45.
Components of the net periodic benefit cost for the postretirement health benefit plan were (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
 
               
Service cost (benefits attributed to service during the period)
  $ 180     $ 157  
Interest cost on accumulated postretirement health benefit obligation
    221       229  
Amortization of loss
    67       78  
Amortization of prior service cost/(credit)
    (183 )     (183 )
 
           
Net periodic postretirement health benefit cost
  $ 285     $ 281  
 
           
The measurement date used to determine current period’s benefit obligation was December 31, 2010.
Key assumptions and other information to determine current period’s obligation for the postretirement health benefit plan were as follows:
                 
    March 31, 2011     December 31, 2010  
 
               
Weighted average discount rate
    5.35 %     5.35 %
 
               
Health care cost trend rates:
               
Assumed for next year
    9.00 %     9.00 %
Pre 65 Ultimate rate
    5.00 %     5.00 %
Pre 65 Year that ultimate rate is reached
    2016       2016  
Post 65 Ultimate rate
    6.00 %     6.00 %
Post 65 Year that ultimate rate is reached
    2016       2016  
Alternative amortization methods used to amortize
               
Prior service cost
  Straight - line     Straight - line  
Unrecognized net (gain) or loss
  Straight - line     Straight - line  
The discount rate was based on the Citigroup Pension Liability Index at December 31, 2010 and adjusted for duration.
Note 15. Derivatives and Hedging Activities.
General — The FHLBNY may enter into interest-rate swaps, swaptions, and interest-rate cap and floor agreements to manage its exposure to changes in interest rates. The FHLBNY may also use callable swaps to potentially adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk management objectives. The FHLBNY uses derivatives in three ways: by designating them as a fair value or cash flow hedge of an underlying financial instrument or a forecasted transaction that qualifies for hedge accounting treatment; by acting as an intermediary; or by designating the derivative as an asset-liability management hedge (i.e., an “economic hedge”). For example, the FHLBNY uses derivatives in its overall interest-rate risk management to adjust the interest-rate sensitivity of consolidated obligations to approximate more closely the interest-rate sensitivity of assets (both advances and investments), and/or to adjust the interest-rate sensitivity of advances, investments or mortgage loans to approximate more closely the interest-rate sensitivity of liabilities. In addition to using derivatives to manage mismatches of interest rates between assets and liabilities, the FHLBNY also uses derivatives: to manage embedded options in assets and liabilities; to hedge the market value of existing assets and liabilities and anticipated transactions; to hedge the duration risk of prepayable instruments; and to reduce funding costs where possible.
In an economic hedge, a derivative hedges specific or non-specific underlying assets, liabilities or firm commitments, but the hedge does not qualify for hedge accounting under the accounting standards for derivatives and hedging; it is, however, an acceptable hedging strategy under the FHLBNY’s risk management program. These strategies also comply with the Finance Agency’s regulatory requirements prohibiting speculative use of derivatives. An economic hedge introduces the potential for earnings variability due to the changes in fair value recorded on the derivatives that are not offset by corresponding changes in the value of the economically hedged assets, liabilities, or firm commitments. The FHLBNY will execute an interest rate swap to match the terms of an asset or liability that is elected under the Fair Value Option (“FVO”) and the swap is also considered as an economic hedge to mitigate the volatility of the FVO designated asset or liability due to change in the full fair value of the designated asset or liability. The FHLBNY elected to use the FVO for certain consolidated obligation debt and executed interest rate swaps to offset the fair value changes of the bonds.

 

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The FHLBNY, consistent with Finance Agency’s regulations, enters into derivatives to manage the market risk exposures inherent in otherwise unhedged assets and funding positions. The FHLBNY utilizes derivatives in the most cost efficient manner and may enter into derivatives as economic hedges that do not qualify for hedge accounting under the accounting standards for derivatives and hedging. As a result, when entering into such non-qualified hedges, the FHLBNY recognizes only the change in fair value of these derivatives in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities with no offsetting fair value adjustments for the hedged asset, liability, or firm commitment.
Hedging activities
Consolidated Obligations — The FHLBNY manages the risk arising from changing market prices and volatility of a consolidated obligation by matching the cash inflows on the derivative with the cash outflow on the consolidated obligation. While consolidated obligations are the joint and several obligations of the FHLBanks, one or more FHLBanks may individually serve as counterparties to derivative agreements associated with specific debt issues. For instance, in a typical transaction, fixed-rate consolidated obligations are issued for one or more FHLBanks, and each of those FHLBanks could simultaneously enter into a matching derivative in which the counterparty pays to the FHLBank fixed cash flows designed to mirror in timing and amount the cash outflows the FHLBank pays on the consolidated obligations. When such transactions qualify for hedge accounting they are treated as fair value hedges under the accounting standards for derivatives and hedging. The FHLBNY has also elected to use the FVO for certain consolidated obligation bonds and discount notes and these were measured under the accounting standards at fair value. To mitigate the volatility resulting from changes in fair values of bonds and notes designated under the FVO, the Bank has also executed interest rate swaps as economic hedges of the bonds and notes.
The FHLBNY has issued variable-rate consolidated obligations bonds indexed to 1 month-LIBOR, the U.S. Prime rate, or Federal funds rate and simultaneously executed interest-rate swaps (“basis swaps”) to hedge the basis risk of the variable rate debt to 3-month LIBOR, the FHLBNY’s preferred funding base. The interest rate basis swaps were accounted for as economic hedges of the floating-rate bonds because the FHLBNY deemed that the operational cost of designating the hedges under accounting standards for derivatives and hedge accounting would outweigh the accounting benefits. The issuance of the consolidated obligation fixed-rate bonds to investors and the execution of interest rate swaps typically results in cash flow pattern in which the FHLBNY has effectively converted the bonds’ fixed cash flows to variable cash flows that closely match the interest payments it receives on short-term or variable-rate advances. From time-to-time, this intermediation between the capital and swap markets has permitted the FHLBNY to raise funds at a lower cost than would otherwise be available through the issuance of simple fixed- or floating-rate consolidated obligations in the capital markets. The FHLBNY does not issue consolidated obligations denominated in currencies other than U.S. dollars.
Advances With a putable fixed-rate advance borrowed by a member, the FHLBNY may purchase from the member a put option that enables the FHLBNY to effectively convert an advance from fixed-rate to floating-rate by exercising the put option and terminating the advance at par on the pre-determined put exercise dates. Typically, the FHLBNY will exercise the option in a rising interest rate environment. The FHLBNY may hedge a putable advance by entering into a cancelable interest rate swap in which the FHLBNY pays to the swap counterparty fixed-rate cash flows and receives variable-rate cash flows. This type of hedge is treated as a fair value hedge under the accounting standards for derivatives and hedging. The swap counterparty can cancel the swap on the put date, which would normally occur in a rising rate environment, and the FHLBNY can terminate the advance and extend additional credit to the member on new terms.
The optionality embedded in certain financial instruments held by the FHLBNY can create interest-rate risk. When a member prepays an advance, the FHLBNY could suffer lower future income if the principal portion of the prepaid advance were reinvested in lower-yielding assets that would continue to be funded by higher-cost debt. To protect against this risk, the FHLBNY generally charges a prepayment fee that makes it financially indifferent to a borrower’s decision to prepay an advance. When the Bank offers advances (other than short-term) that are prepayable by members without a prepayment fee, it usually finances such advances with callable debt. The Bank has not elected the FVO for any advances.
Mortgage Loans — The FHLBNY invests in mortgage assets. The prepayment options embedded in mortgage assets can result in extensions or reductions in the expected maturities of these investments, depending on changes in estimated prepayment speeds. Net income would decline if the FHLBNY replaced the mortgages with lower yielding assets and if the Bank’s higher funding costs were not reduced concomitantly. Finance Agency regulations limit this source of interest-rate risk by restricting the types of mortgage assets the Bank may own to those with limited average life that changes under certain interest-rate shock scenarios and by establishing limitations on duration of equity and changes in market value of equity. The FHLBNY may manage against prepayment and duration risk by funding some mortgage assets with consolidated obligations that have call features. In addition, the FHLBNY may use derivatives to manage the prepayment and duration variability of mortgage assets.
The FHLBNY manages the interest rate and prepayment risks associated with mortgages through debt issuance. The FHLBNY issues both callable and non-callable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The FHLBNY analyzes the duration, convexity and earnings risk of the mortgage portfolio on a regular basis under various rate scenarios.

 

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The Bank has not elected to use the FVO for any mortgage loans. No mortgage loan has been hedged with a derivative. The Bank considers a “delivery commitment” to purchase mortgage loans to be a derivative. See description below for the accounting of delivery commitments.
Firm Commitment Strategies — Mortgage delivery commitments are considered derivatives under the accounting standards for derivatives and hedging, and the FHLBNY accounts for them as freestanding derivatives, recording the fair values of mortgage loan delivery commitments on the balance sheet with an offset to current period earnings. Fair values were de minimis for all periods reported.
The FHLBNY may also hedge a firm commitment for a forward starting advance through the use of an interest-rate swap. In this case, the swap will function as the hedging instrument for both the firm commitment and the subsequent advance. The basis movement associated with the firm commitment will be added to the basis of the advance at the time the commitment is terminated and the advance is issued. The basis adjustment will then be amortized into interest income over the life of the advance. If a hedged firm commitment no longer qualified as a fair value hedge, the hedge would be terminated and net gains and losses would be recognized in current period earnings. There were no material amounts of gains and losses recognized due to disqualification of firm commitment hedges in any periods in this report.
Forward Settlements — There were no forward settled securities that would settle outside the shortest period of time for the settlement of such securities in any period ends in this report.
Anticipated Debt Issuance — The FHLBNY enters into interest-rate swaps on the anticipated issuance of debt to “lock in” a spread between the earning asset and the cost of funding. The swap is terminated upon issuance of the debt instrument, and amounts reported in AOCI are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the debt that was issued.
In the three months ended March 31, 2011, the Bank entered into an interest rate swap agreement with an unrelated swap dealer and designated it as a hedge of the variable quarterly interest payments on a 9-year discount note borrowing program expected to be accomplished by a series of issuances of $150.0 million discount notes with 91-day terms. The FHLBNY will continue issuing new 91-day discount notes over the next 9 years as each outstanding discount note matures. The interest on the FHLBank discount note is expected to be highly correlated with 3-month LIBOR and will be determined each time the note is issued. The interest rate swap requires a settlement every 91 days, and the variable rate, which is based on the 3-month LIBOR, is reset immediately following each payment. The swap is expected to eliminate the risk of variability of cash flows for each forecasted discount note issuances every 91 days. The FHLBNY performs prospective hedge effectiveness analysis every 91 days and a retrospective hedge effectiveness analysis every quarter. The fair value of the interest rate swap is recorded in AOCI and ineffectiveness, if any, is measured using the “hypothetical derivative method” and recorded in earnings. The effective portion remains in AOCI. The Bank monitors the credit standing of the derivative counterparty each quarter.
Intermediation — To meet the hedging needs of its members, the FHLBNY acts as an intermediary between the members and the other counterparties. This intermediation allows smaller members access to the derivatives market. The derivatives used in intermediary activities do not qualify for hedge accounting under the accounting standards for derivatives and hedging, and are separately marked-to-market through earnings. The net impact of the accounting for these derivatives does not significantly affect the operating results of the FHLBNY.
Derivative agreements in which the FHLBNY is an intermediary may arise when the FHLBNY: (1) enters into offsetting derivatives with members and other counterparties to meet the needs of its members, and (2) enters into derivatives to offset the economic effect of other derivative agreements that are no longer designated to either advances, investments, or consolidated obligations. Fair values of the swaps sold to members net of the fair values of swaps purchased from derivative counterparties were not material at any periods in this report. Collateral with respect to derivatives with member institutions includes collateral assigned to the FHLBNY as evidenced by a written security agreement and held by the member institution for the benefit of the FHLBNY.
Economic hedges — Economic hedges comprised primarily of: (1) Short- and medium-term interest rate swaps that hedged the basis risk (Prime rate, Fed fund rate, and the 1-month LIBOR index) of variable-rate bonds issued by the FHLBNY. These swaps were considered freestanding and changes in the fair values of the swaps were recorded through income. The FHLBNY believes the operational cost of designating the basis hedges in a qualifying hedge would outweigh the benefits of applying hedge accounting. (2) Interest rate caps hedging balance sheet risk, primarily certain capped floating-rate investment securities, were considered freestanding derivatives with fair value changes recorded through Other income (loss) as a Net realized and unrealized gain or loss on derivatives and hedging activities. (3) Interest rate swaps that had previously qualified as hedges under the accounting standards for derivatives and hedging, but had been subsequently de-designated from hedge accounting as they were assessed as being not highly effective hedges. (4) Interest rate swaps executed to offset the fair value changes of bonds designated under the FVO.
The FHLBNY is not a derivatives dealer and does not trade derivatives for short-term profit.
Credit Risk — The FHLBNY is subject to credit risk due to the risk of nonperformance by counterparties to the derivative agreements. The FHLBNY transacts most of its derivatives with major financial institutions. Some of these institutions or their affiliates buy, sell, and distribute consolidated obligations. The FHLBNY is also subject to operational risks in the execution and servicing of derivative transactions. The degree of counterparty risk on derivative agreements depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. The FHLBNY manages counterparty credit risk through credit analysis and collateral requirements and by following the requirements set forth in Finance Agency’s regulations. In determining credit risk, the FHLBNY considers accrued interest receivables and payables, and the legal right to offset assets and liabilities by counterparty.

 

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The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the various classes of financial instruments, but it does not measure the credit risk exposure of the FHLBNY, and the maximum credit exposure of the FHLBNY is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing favorable interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans, and purchased caps and floors (“derivatives”) if the counterparty defaults and the related collateral, if any, is of insufficient value to the FHLBNY.
The FHLBNY uses collateral agreements to mitigate counterparty credit risk in derivatives. When the FHLBNY has more than one derivative transaction outstanding with a counterparty, and a legally enforceable master netting agreement exists with the counterparty, the exposure (less collateral held) represents the appropriate measure of credit risk. Substantially all derivative contracts are subject to master netting agreements or other right of offset arrangements. At March 31, 2011 and December 31, 2010, the Bank’s credit exposure, representing derivatives in a fair value net gain position, was approximately $25.0 million and $22.0 million after the recognition of any cash collateral held by the FHLBNY. The credit exposures at March 31, 2011 and December 31, 2010 included $19.2 million and $6.1 million in net interest receivable.
Derivative counterparties are also exposed to credit losses resulting from potential nonperformance risk of FHLBNY with respect to derivative contracts. Derivative counterparties’ exposure to the FHLBNY is measured by derivatives in a fair value loss position from the FHLBNY’s perspective, which from the counterparties’ perspective is a gain. At March 31, 2011 and December 31, 2010, derivatives in a net unrealized loss position, which represented the counterparties’ exposure to the potential non-performance risk of the FHLBNY, were $839.7 million and $954.9 million after deducting $1.9 billion and $2.7 billion of cash collateral pledged by the FHLBNY at those dates to the exposed counterparties. The FHLBNY is exposed to the risk of derivative counterparties defaulting on the terms of the derivative contracts and failing to return cash deposited with counterparties. If such an event were to occur, the FHLBNY would be forced to replace derivatives by executing similar derivative contracts with other counterparties. To the extent that the FHLBNY receives cash from the replacement trades that is less than the amount of cash deposited with the defaulting counterparty, the FHLBNY’s cash pledged is exposed to credit risk. Derivative counterparties holding the FHLBNY’s cash as pledged collateral were rated Single-A or better at March 31, 2011, and based on credit analyses and collateral requirements, the management of the FHLBNY does not anticipate any credit losses on its derivative agreements.
Impact of rating downgrade — The FHLBNY transacts in derivative transactions directly with unaffiliated derivatives dealers under ISDA agreements. Each of the ISDA agreements also includes Credit Support Amount (“CSA”) provisions, which provide for collateral postings at various ratings and threshold levels and the continuation of the FHLBNY’s status as a government sponsored enterprise (“GSE”). The aggregate fair value of the FHLBNY’s derivative instruments that were in a net liability position at March 31, 2011 was approximately $839.7 million. Many of the CSA agreements stipulate that so long as the FHLBNY retains its GSE status, ratings downgrades would not result in the posting of additional collateral. Other CSA agreements would require the FHLBNY to post additional collateral based solely on an adverse change in the credit rating of the FHLBNY. On the assumption that the FHLBNY will retain its status as a GSE, the FHLBNY estimates that at March 31, 2011, a one-notch downgrade of FHLBNY’s credit rating (currently is assigned Triple-A by both Moody’s and S&P) to Aa by Moody’s Investor Services (Moody’s) and AA by Standard & Poor’s (S&P), would permit counterparties to make additional collateral calls of up to $440.3 million. Additional collateral postings upon downgrade are estimated based on the factors in the individual collateral posting provisions of the CSA with each counterparty and current exposure as of March 31, 2011.

 

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The following table summarizes outstanding notional balances and estimated fair values of the derivatives outstanding (in thousands):
                         
    March 31, 2011  
    Notional Amount of             Derivative  
    Derivatives     Derivative Assets     Liabilities  
Fair value of derivatives instruments
                       
Derivatives designated in hedging relationships
                       
Interest rate swaps-fair value hedges
  $ 91,722,304     $ 853,120     $ 3,590,893  
Interest rate swaps-cash flow hedges
    205,000       2,357        
 
                 
Total derivatives in hedging instruments
    91,927,304       855,477       3,590,893  
 
                 
 
                       
Derivatives not designated as hedging instruments
                       
Interest rate swaps
    23,897,530       22,248       13,403  
Interest rate caps or floors
    1,900,000       38,290       105  
Mortgage delivery commitments
    25,197       73       29  
Other*
    550,000       6,265       5,634  
 
                 
Total derivatives not designated as hedging instruments
    26,372,727       66,876       19,171  
 
                 
 
                       
Total derivatives before netting and collateral adjustments
  $ 118,300,031       922,353       3,610,064  
 
                 
Netting adjustments
            (897,389 )     (897,389 )
Cash collateral and related accrued interest
                  (1,872,965 )
 
                   
Total collateral and netting adjustments
            (897,389 )     (2,770,354 )
 
                   
Total reported on the Statements of Condition
          $ 24,964     $ 839,710  
 
                   
                         
    December 31, 2010  
    Notional Amount of             Derivative  
    Derivatives     Derivative Assets     Liabilities  
 
                       
Fair value of derivatives instruments
                       
Derivatives designated in hedging relationships
                       
Interest rate swaps-fair value hedges
  $ 93,840,813     $ 944,807     $ 4,661,102  
Interest rate swaps-cash flow hedges
                 
 
                 
Total derivatives in hedging instruments
    93,840,813       944,807       4,661,102  
 
                 
 
                       
Derivatives not designated as hedging instruments
                       
Interest rate swaps
    24,400,547       23,911       12,543  
Interest rate caps or floors
    1,900,000       41,881       107  
Mortgage delivery commitments
    29,993       9       523  
Other*
    550,000       6,069       5,392  
 
                 
Total derivatives not designated as hedging instruments
    26,880,540       71,870       18,565  
 
                 
 
                       
Total derivatives before netting and collateral adjustments
  $ 120,721,353       1,016,677       4,679,667  
 
                 
Netting adjustments
            (994,667 )     (994,667 )
Cash collateral and related accrued interest
                  (2,730,102 )
 
                   
Total collateral and netting adjustments
            (994,667 )     (3,724,769 )
 
                   
Total reported on the Statements of Condition
          $ 22,010     $ 954,898  
 
                   
*   Other: Comprised of swaps intermediated for members.
The categories “Fair value”, “Mortgage delivery commitment”, and “Cash Flow” hedges — represent derivative transactions in hedging relationships. If any such hedges do not qualify for hedge accounting under the accounting standards for derivatives and hedging, they are classified as “Economic” hedges. Changes in fair values of economic hedges are recorded through the income statement without the offset of corresponding changes in the fair value of the hedged item. Changes in fair values of qualifying derivative transactions designated in fair value hedges are recorded through the income statement with the offset of corresponding changes in the fair values of the hedged items. The effective portion of changes in the fair values of derivatives designated in a qualifying cash flow hedge is recorded in Accumulated other comprehensive income (loss).

 

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Earnings impact of derivatives and hedging activities
Net realized and unrealized gain (loss) on derivatives and hedging activities
The FHLBNY carries all derivative instruments on the Statements of Condition at fair value as Derivative Assets and Derivative Liabilities. If derivatives meet the hedging criteria under hedge accounting rules, including effectiveness measures, changes in fair value of the associated hedged financial instrument attributable to the risk being hedged (benchmark interest-rate risk, which is LIBOR for the FHLBNY) may also be recorded so that some or all of the unrealized fair value gains or losses recognized on the derivatives are offset by corresponding unrealized gains or losses on the associated hedged financial assets and liabilities. The net differential between fair value changes of the derivatives and the hedged items represent hedge ineffectiveness. Hedge ineffectiveness represents the amounts by which the changes in the fair value of the derivatives differ from the changes in the fair values of the hedged items or the variability in the cash flows of forecasted transactions. The net ineffectiveness from hedges that qualify under hedge accounting rules are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income. If derivatives do not qualify for the hedging criteria under hedge accounting rules, but are executed as economic hedges of financial assets or liabilities under a FHLBNY-approved hedge strategy, only the fair value changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income.
When the FHLBNY elects to measure certain debt under the accounting designation for FVO, the Bank will typically execute a derivative as an economic hedge of the debt. Fair value changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income. Fair value changes of the debt designated under the FVO are also recorded in Other income (loss) as an unrealized (loss) or gain from Instruments held at fair value.
Components of hedging gains and losses from derivatives and hedging activities for the three months ended March 31, 2011 are summarized below (in thousands):
                                 
    Three months ended March 31, 2011  
                            Effect of  
                            Derivatives on  
    Gain (Loss) on     Gain (Loss) on     Earnings     Net Interest  
    Derivative     Hedged Item     Impact     Income 1  
 
                               
Derivatives designated as hedging instruments
                               
Interest rate swaps
                               
Advances
  $ 551,846     $ (495,509 )   $ 56,337     $ (440,823 )
Consolidated obligations
    (146,891 )     148,688       1,797       134,999  
 
                       
Net gain (loss) related to fair value hedges
    404,955       (346,821 )     58,134       (305,824 )
 
                       
 
                               
Derivatives not designated as hedging instruments
                               
Interest rate swaps
                               
Advances
    683             683        
Consolidated obligations-bonds
    (211 )           (211 )      
Consolidated obligations-discount notes
                       
Member intermediation
    (46 )           (46 )      
Balance sheet-macro hedges swaps
                       
Accrued interest-swaps
    2,703             2,703        
Accrued interest-intermediation
    46             46        
Caps and floors
                               
Advances
    (18 )           (18 )      
Balance sheet
    (3,589 )           (3,589 )      
Accrued interest-options
                       
Mortgage delivery commitments
    169             169        
Swaps economically hedging instruments designated under FVO
                               
Consolidated obligations-bonds
    (2,594 )           (2,594 )      
Consolidated obligations-discount notes
    (861 )           (861 )      
Accrued interest on swaps
    10,154             10,154        
 
                       
Net gain (loss) related to derivatives not designated as hedging instruments
    6,436             6,436        
 
                       
Total
  $ 411,391     $ (346,821 )   $ 64,570     $ (305,824 )
 
                       

 

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Components of hedging gains and losses from derivatives and hedging activities for the three months ended March 31, 2010 are summarized below (in thousands):
                                 
    Three months ended March 31, 2010  
                            Effect of  
                            Derivatives on  
    Gain (Loss) on     Gain (Loss) on     Earnings     Net Interest  
    Derivative     Hedged Item     Impact     Income 1  
 
                               
Derivatives designated as hedging instruments
                               
Interest rate swaps
                               
Advances
  $ (152,087 )   $ 152,706     $ 619     $ (530,377 )
Consolidated obligations
    52,236       (48,232 )     4,004       172,777  
 
                       
Net gain (loss) related to fair value hedges
    (99,851 )     104,474       4,623       (357,600 )
 
                       
 
                               
Derivatives not designated as hedging instruments
                               
Interest rate swaps
                               
Advances
    (840 )           (840 )      
Consolidated obligations-bonds
    (13,309 )           (13,309 )      
Consolidated obligations-discount notes
    (2,332 )           (2,332 )      
Member intermediation
    (3 )           (3 )      
Balance sheet-macro hedges swaps
    173             173        
Accrued interest-swaps
    29,469             29,469        
Accrued interest-intermediation
    23             23        
Caps and floors
                               
Advances
    (289 )           (289 )      
Balance sheet
    (30,427 )           (30,427 )      
Accrued interest-options
    (1,989 )           (1,989 )      
Mortgage delivery commitments
    149             149        
Swaps economically hedging instruments designated under FVO
                               
Consolidated obligations-bonds
    6,638             6,638        
Consolidated obligations-discount notes
                       
Accrued interest on swaps
    7,751             7,751        
 
                       
Net gain (loss) related to derivatives not designated as hedging instruments
    (4,986 )           (4,986 )      
 
                       
Total
  $ (104,837 )   $ 104,474     $ (363 )   $ (357,600 )
 
                       
1   Represents interest expense and income generated from hedge qualifying interest-rate swaps that were recorded with interest income and expense of the hedged — bonds, discount notes, and advances.
Cash Flow hedges
For the three months ended March 31, 2011, the Bank entered into an interest rate swap agreement with an unrelated swap dealer and designated it as a hedge of the variable quarterly interest payments on a 9-year discount note borrowing program expected to be accomplished by a series of issuances of $150.0 million discount notes with 91-day terms. The FHLBNY will continue issuing new 91-day discount notes over the next 9 years as each outstanding discount note matures. The interest on the FHLBank discount note is expected to be highly correlated with 3-month LIBOR and will be determined each time the note is issued. The interest rate swap requires a settlement every 91 days, and the variable rate, which is based on the 3-month LIBOR, is reset immediately following each payment. The swap is expected to eliminate the risk of variability of in cash flows for each forecasted discount note issuances every 91 days. The FHLBNY performs prospective hedge effectiveness analysis every 91 days and a retrospective hedge effectiveness analysis every quarter. The fair value of the interest rate swap is recorded in AOCI and ineffectiveness, if any, is measured using the “hypothetical derivative method” and recorded in earnings. The effective portion remains in AOCI and is reclassified into earnings in the same period during which the hedged forecasted 91 day discount note expense affects earnings. The Bank monitors the credit standing of the derivative counterparty each quarter. The notional amount of the interest rate swap outstanding under this program was $150.0 million at March 31, 2011 and the fair value recorded in AOCI was an unrealized gain of $1.9 million.
From time-to-time, the Bank executes interest rate swaps on the anticipated issuance of debt to “lock in” a spread between the earning asset and the cost of funding. The hedges are accounted under cash flow hedging rules and the effective portion of changes in the fair values of the swaps is recorded in AOCI. The ineffective portion is recorded through net income. The swap is terminated upon issuance of the debt instrument, and amounts reported in AOCI are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the debt that was issued. The maximum period of time that the Bank typically hedges its exposure to the variability in future cash flows for forecasted transactions is between three and six months. At March 31, 2011, the Bank had open contracts of $55.0 million of swaps to hedge the anticipated issuances of debt. The fair values of the open contracts recorded in AOCI was an unrealized gain $0.4 million at March 31, 2011. There were no open contracts at December 31, 2010. For any periods in this report, there were no material amounts that were reclassified into earnings as a result of the discontinuance of cash flow hedges because it became probable that the original forecasted transactions would not occur by the end of the originally specified time period or within a two-month period thereafter.

 

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The amounts in AOCI from terminated cash flow hedges representing net unrecognized losses were $13.4 million and $15.2 million at March 31, 2011 and December 31, 2010. At March 31, 2011, it is expected that over the next 12 months about $3.7 million of net losses recorded in AOCI will be recognized as a yield adjustment to consolidated bond interest expense and a charge to earnings.
The effect of cash flow hedge related derivative instruments were as follows (in thousands):
                             
    Three months ended March 31, 2011  
    AOCI  
    Gains/(Losses)  
            Location:   Amount     Ineffectiveness  
    Recognized     Reclassified to   Reclassified to     Recognized in  
    in AOCI 1, 2     Earnings 1   Earnings 1     Earnings  
The effect of cash flow hedge related to Interest rate swaps
                           
Advances
  $     Interest Income   $     $  
Consolidated obligations-bonds
    772     Interest Expense     1,038        
Consolidated obligations-discount notes
    1,918     Interest Expense            
 
                     
Total
  $ 2,690         $ 1,038     $  
 
                     
                             
    Three months ended March 31, 2010  
    AOCI  
    Gains/(Losses)  
            Location:   Amount     Ineffectiveness  
    Recognized     Reclassified to   Reclassified to     Recognized in  
    in AOCI 1, 2     Earnings 1   Earnings 1     Earnings  
The effect of cash flow hedge related to Interest rate swaps
                           
Advances
  $     Interest Income   $     $  
Consolidated obligations-bonds
    392     Interest Expense     1,740        
Consolidated obligations-discount notes
        Interest Expense            
 
                     
Total
  $ 392         $ 1,740     $  
 
                     
1   Effective portion
 
2   Represents basis adjustments from cash flow hedging transactions recorded in AOCI.

 

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Note 16. Fair Values of Financial Instruments.
Items Measured at Fair Value on a Recurring Basis
The following table presents for each hierarchy level (see note below), the FHLBNY’s assets and liabilities that were measured at fair value on its Statements of Condition (in thousands):
                                         
    March 31, 2011  
                                    Netting  
    Total     Level 1     Level 2     Level 3     Adjustments  
Assets
                                       
Available-for-sale securities
                                       
GSE/U.S. agency issued MBS
  $ 3,708,872     $     $ 3,708,872     $     $  
Equity and bond funds
    10,152             10,152              
Derivative assets(a)
                                       
Interest-rate derivatives
    24,891             922,280             (897,389 )
Mortgage delivery commitments
    73             73              
 
                             
 
                                       
Total assets at fair value
  $ 3,743,988     $     $ 4,641,377     $     $ (897,389 )
 
                             
 
                                       
Liabilities
                                       
Consolidated obligations:
                                       
Discount notes (to the extent FVO is elected)
  $ (731,892 )   $     $ (731,892 )   $     $  
Bonds (to the extent FVO is elected) (b)
    (12,605,257 )           (12,605,257 )            
Derivative liabilities(a)
                                       
Interest-rate derivatives
    (839,681 )           (3,610,035 )           2,770,354  
Mortgage delivery commitments
    (29 )           (29 )            
 
                             
 
                                       
Total liabilities at fair value
  $ (14,176,859 )   $     $ (16,947,213 )   $     $ 2,770,354  
 
                             
 
                                       
    December 31, 2010  
                                    Netting  
    Total     Level 1     Level 2     Level 3     Adjustments  
Assets
                                       
Available-for-sale securities
                                       
GSE/U.S. agency issued MBS
  $ 3,980,135     $     $ 3,980,135     $     $  
Equity and bond funds
    9,947             9,947              
Derivative assets(a)
                                       
Interest-rate derivatives
    22,001             1,016,668             (994,667 )
Mortgage delivery commitments
    9             9              
 
                             
 
                                       
Total assets at fair value
  $ 4,012,092     $     $ 5,006,759     $     $ (994,667 )
 
                             
 
                                       
Liabilities
                                       
Consolidated obligations:
                                       
Discount notes (to the extent FVO is elected)
  $ (956,338 )   $     $ (956,338 )   $     $  
Bonds (to the extent FVO is elected) (b)
    (14,281,463 )           (14,281,463 )            
Derivative liabilities(a)
                                       
Interest-rate derivatives
    (954,375 )           (4,679,144 )           3,724,769  
Mortgage delivery commitments
    (523 )           (523 )            
 
                             
 
                                       
Total liabilities at fair value
  $ (16,192,699 )   $     $ (19,917,468 )   $     $ 3,724,769  
 
                             
    Level 1 — Quoted prices in active markets for identical assets.
 
    Level 2 — Significant other observable inputs.
 
    Level 3 — Significant unobservable inputs.
 
(a)   Derivative assets and liabilities were interest-rate contracts, including de minimis amount of mortgage delivery contracts. Based on an analysis of the nature of the risk, the presentation of derivatives as a single class is appropriate.
 
(b)   Based on its analysis of the nature of risks of the FHLBNY’s debt measured at fair value, the FHLBNY has determined that presenting the debt as a single class is appropriate.
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities would be measured at fair value on a nonrecurring basis. For the FHLBNY, such items may include mortgage loans in foreclosure, or mortgage loans and held-to-maturity securities written down to fair value, and real estate owned. At March 31, 2011 and December 31, 2010, the Bank measured and recorded the fair values of HTM securities deemed to be OTTI on a nonrecurring basis; that is, they were not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of other-than-temporary impairment — OTTI) in accordance with the guidance on recognition and presentation of other-than-temporary impairment. At December 31, 2010, certain held-to-maturity securities were deemed OTTI and their carrying values written down and recorded at their fair values on a nonrecurring basis. There were no held-to-maturity securities that had to be written down to their fair values at March 31, 2011.

 

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The following table summarizes the fair values of MBS for which a non-recurring 1 change in fair value was recorded (in thousands):
                                 
    December 31, 2010  
    Fair Value     Level 1     Level 2     Level 3  
Held-to-maturity securities
                               
Private-label residential mortgage-backed securities
  $ 15,827     $     $     $ 15,827  
 
                       
Total
  $ 15,827     $     $     $ 15,827  
 
                       
Note:   Certain OTTI securities were written down to their fair values ($15.8 million) when it was determined that their carrying values prior to write-down ($16.3 million) were in excess of their fair values. For Held-to-maturity securities that were previously credit impaired but no additional credit impairment were deemed necessary at December 31, 2010, the securities were recorded at their carrying values and not re-adjusted to their fair values.
 
1   March 31, 2011 — No non-recurring fair values were recorded.
Estimated fair values — Summary Tables
The carrying values and estimated fair values of the FHLBNY’s financial instruments were as follows (in thousands):
                                 
    March 31, 2011     December 31, 2010  
    Carrying     Estimated     Carrying     Estimated  
Financial Instruments   Value     Fair Value     Value     Fair Value  
Assets
                               
Cash and due from banks
  $ 2,953,801     $ 2,953,801     $ 660,873     $ 660,873  
Federal funds sold
    5,093,000       5,092,998       4,988,000       4,987,976  
Available-for-sale securities
    3,719,024       3,719,024       3,990,082       3,990,082  
Held-to-maturity securities
                               
Long-term securities
    8,042,487       8,152,867       7,761,192       7,898,300  
Advances
    75,487,377       75,600,168       81,200,336       81,292,598  
Mortgage loans held-for-portfolio, net
    1,270,891       1,325,914       1,265,804       1,328,787  
Accrued interest receivable
    250,454       250,454       287,335       287,335  
Derivative assets
    24,964       24,964       22,010       22,010  
Other financial assets
    3,032       3,032       3,981       3,981  
 
                               
Liabilities
                               
Deposits
    2,512,631       2,512,635       2,454,480       2,454,488  
Consolidated obligations:
                               
Bonds
    68,529,981       68,679,235       71,742,627       71,926,039  
Discount notes
    19,507,159       19,507,547       19,391,452       19,391,743  
Mandatorily redeemable capital stock
    59,126       59,126       63,219       63,219  
Accrued interest payable
    230,109       230,109       197,266       197,266  
Derivative liabilities
    839,710       839,710       954,898       954,898  
Other financial liabilities
    52,178       52,178       58,818       58,818  

 

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Fair Value Option Disclosures
The following table summarizes the activity related to consolidated obligation bonds and discount notes for which the Bank elected the Fair Value Option (in thousands):
                                         
    Bonds     Discount Notes *  
    March 31, 2011     December 31, 2010     March 31, 2010     March 31, 2011     December 31, 2010  
Balance, beginning of the period
  $ (14,281,463 )   $ (6,035,741 )   $ (6,035,741 )   $ (956,338 )   $  
New transactions elected for fair value option
    (12,250,000 )     (25,471,000 )     (4,420,000 )           (1,851,991 )
Maturities and terminations
    13,926,000       17,235,000       3,685,000       224,448       898,788  
Changes in fair value
    316       (2,556 )     (8,419 )     424       (787 )
Changes in accrued interest/unaccreted balance
    (110 )     (7,166 )     (1,453 )     (426 )     (2,348 )
 
                             
 
                                       
Balance, end of the period
  $ (12,605,257 )   $ (14,281,463 )   $ (6,780,613 )   $ (731,892 )   $ (956,338 )
 
                             
*   Note: Discount notes were not designated under FVO at March 31, 2010
The following table presents the change in fair value included in the Statements of Income for the consolidated obligation bonds and discount notes designated in accordance with the accounting standards on the Fair Value Option for financial assets and liabilities (in thousands):
                                                 
    Three months ended March 31,  
    2011     2010  
            Net Gain(Loss)     Total Change in Fair             Net Gain(Loss)     Total Change in Fair  
            Due to     Value Included in             Due to     Value Included in  
    Interest     Changes in     Current Period     Interest     Changes in     Current Period  
    Expense     Fair Value     Earnings     Expense     Fair Value     Earnings  
 
                                               
Consolidated obligations-bonds
  $ (13,838 )   $ 316     $ (13,522 )   $ (8,522 )   $ (8,419 )   $ (16,941 )
Consolidated obligations-discount notes
    (981 )     424       (557 )                  
 
                                   
 
  $ (14,819 )   $ 740     $ (14,079 )   $ (8,522 )   $ (8,419 )   $ (16,941 )
 
                                   
The following table compares the aggregate fair value, and aggregate remaining contractual principal balance outstanding of consolidated obligation bonds and discount notes for which the Fair Value Option has been elected (in thousands):
                                                 
    March 31, 2011     December 31, 2010  
    Principal             Fair Value     Principal             Fair Value  
    Balance     Fair Value     Over/(Under)     Balance     Fair Value     Over/(Under)  
 
                                               
Consolidated obligations-bonds
  $ 12,600,000     $ 12,605,257     $ 5,257     $ 14,276,000     $ 14,281,463     $ 5,463  
Consolidated obligations-discount notes
    728,755       731,892       3,137       953,203       956,338       3,135  
 
                                   
 
  $ 13,328,755     $ 13,337,149     $ 8,394     $ 15,229,203     $ 15,237,801     $ 8,598  
 
                                   
Notes to Estimated Fair Values of Financial Instruments
The fair value of a financial instrument that is an asset is defined as the price FHLBNY would receive to sell an asset in an orderly transaction between market participants at the measurement date. A financial liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair values are based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices are not available, valuation models and inputs are utilized. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or markets and the instruments’ complexity.
The fair values of financial assets and liabilities reported in the tables above are discussed below. The Fair Value Summary Tables above do not represent an estimate of the overall market value of the FHLBNY as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.
The estimated fair value amounts have been determined by the FHLBNY using procedures described below. Because an active secondary market does not exist for a portion of the FHLBNY’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change.
Cash and due from banks
The estimated fair value approximates the recorded book balance.
Interest-bearing deposits and Federal funds sold
The FHLBNY determines estimated fair values of certain short-term investments by calculating the present value of expected future cash flows from the investments. The discount rates used in these calculations are the current coupons of investments with similar terms.

 

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Investment securities
The Bank requests prices for all mortgage-backed securities from four third-party vendors, and depending on the number of prices received for each security, selects a median or average price as defined by the methodology. If four prices are received by the FHLBNY from the pricing vendors, the average of the middle two prices is used; if three prices are received, the middle price is used; if two prices are received, the average of the two prices is used; and if one price is received, it is subject to additional validation.
The FHLBNY routinely performs a comparison analysis of pricing to understand pricing trends and to establish a means of validating changes in pricing from period to period. The computed prices are tested for reasonableness using tolerance thresholds. Prices within the established thresholds are generally accepted unless strong evidence suggests that using the median pricing methodology described above would not be appropriate. Preliminary estimated fair values that are outside the tolerance thresholds, or that management believes may not be appropriate based on all available information (including those limited instances in which only one price is received), are subject to further analysis of all relevant facts and circumstances that a market participant would consider. The Bank also runs pricing through prepayment models to test the reasonability of pricing relative to changes in the implied prepayment options of the bonds. Separately, the Bank performs comprehensive credit analysis, including the analysis of underlying cash flows and collateral.
The FHLBNY believes such methodologies — valuation comparison, review of changes in valuation parameters, and credit analysis have been designed to identify the effects of the credit crisis, which has tended to reduce the availability of certain observable market pricing or has caused the widening of the bid/offer spread of certain securities.
Four vendor prices were received for substantially all of the FHLBNY’s MBS holdings and substantially all of those prices fell within the specified thresholds. The relative proximity of the prices received supported the FHLBNY’s conclusion that the final computed prices were reasonable estimates of fair value. While the FHLBNY adopted this common methodology, the fair values of mortgage-backed investment securities are still estimated by FHLBNY’s management which remains responsible for the selection and application of its fair value methodology and determining the reasonableness of assumptions and inputs used.
The four specialized pricing services use pricing models or quoted prices of securities with similar characteristics. The valuation techniques used by pricing services employ cash flow generators and option-adjusted spread models. Pricing spreads used as inputs in the models are based on new issue and secondary market transactions if the securities are traded in sufficient volumes in the secondary market. These pricing vendors typically employ valuation techniques that incorporate benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing, as appropriate for the security. Such inputs into the pricing models employed by pricing services for the Bank’s investments are market based and observable and are considered Level 2 of the fair value hierarchy.
The valuation of the FHLBNY’s private-label securities, all designated as held-to-maturity, may require pricing services to use significant inputs that are subjective and may be considered to be Level 3 of the fair value hierarchy because of the current lack of significant market activity so that the inputs may not be market based and observable. At the reporting dates in this Form 10-Q, all private-label mortgage-backed securities were classified as held-to-maturity and were recorded in the balance sheet at their carrying values. Carrying value of a security is the same as its amortized cost unless the security is determined to be OTTI. In the period the security is determined to be OTTI, its carrying value is generally adjusted down to its fair value.
In accordance with the amended guidance under the accounting standards for investments in debt and equity securities, certain held-to-maturity private-label mortgage-backed securities were written down to their fair value at December 31, 2010 (none at March 31, 2011) as a result of a recognition of OTTI. For such HTM securities, their carrying values were recorded in the balance sheet at their fair values. The fair values for such securities, classified on a nonrecurring basis, were considered to be Level 3 financial instruments under the valuation hierarchy. This determination was made based on management’s view that the private-label instruments may not have an active market because of the specific vintage of the securities as well as inherent conditions surrounding the trading of private-label mortgage-backed securities.
The fair value of housing finance agency bonds is estimated by management using information primarily from pricing services.
Advances
The fair values of advances are computed using standard option valuation models. The most significant inputs to the valuation model are (1) consolidated obligation debt curve (the “CO Curve”), published by the Office of Finance and available to the public, and (2) LIBOR swap curves and volatilities. The Bank considers both these inputs to be market-based and observable as they can be directly corroborated by market participants.
Mortgage loans
The fair value of MPF loans and loans in the inactive CMA programs are priced using a valuation technique referred to as the “market approach.” Loans are aggregated into synthetic pass-through securities based on product type, loan origination year, gross coupon and loan term. Thereafter, these are compared against closing “TBA” prices extracted from independent sources. All significant inputs to the loan valuations are market-based and observable.

 

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Accrued interest receivable and payable
The estimated fair values approximate the recorded book value because of the relatively short period of time between their origination and expected realization.
Derivative assets and liabilities
The FHLBNY’s derivatives are traded in the over-the-counter market. Discounted cash flow analysis is the primary methodology employed by the FHLBNY’s valuation models to measure and record the fair values of its interest rate swaps. The valuation technique is considered as an “Income approach.” Interest rate caps and floors are valued under the “Market approach.” Interest rate swaps and interest rate caps and floors are valued in industry-standard option-adjusted valuation models that utilize market inputs, which can be corroborated by widely accepted third-party sources. The Bank’s valuation model utilizes a modified Black-Karasinski model that assumes that rates are distributed log normally. The log-normal model precludes interest rates turning negative in the model computations. Significant market-based and observable inputs into the valuation model include volatilities and interest rates. These derivative positions are classified within Level 2 of the valuation hierarchy, and include interest rate swaps, swaptions, interest rate caps and floors, and mortgage delivery commitments.
The FHLBNY employs control processes to validate the fair value of its financial instruments, including those derived from valuation models. These control processes are designed to ensure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to ensure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. These control processes include reviews of the pricing model’s theoretical soundness and appropriateness by specialists with relevant expertise who are independent from the trading desks or personnel who were involved in the design and selection of model inputs. Additionally, groups that are independent from the trading desk or personnel involved in the design and selection of model inputs participate in the review and validation of the fair values generated from the valuation model. The FHLBNY maintains an ongoing review of its valuation models and has a formal model validation policy in addition to procedures for the approval and control of data inputs.
The valuation of derivative assets and liabilities reflects the value of the instrument including the values associated with counterparty risk and would also take into account the FHLBNY’s own credit standing and non-performance risk. The Bank has collateral agreements with all its derivative counterparties and enforces collateral exchanges at least weekly. The computed fair values of the FHLBNY’s derivatives took into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. The Bank and each derivative counterparty have bilateral collateral thresholds that take into account both the Bank’s and the counterparty’s credit ratings. As a result of these practices and agreements and the FHLBNY’s assessment of any change in its own credit spread, the Bank has concluded that the impact of the credit differential between the Bank and its derivative counterparties was sufficiently mitigated to an immaterial level such that no credit adjustments were deemed necessary to the recorded fair value of derivative assets and derivative liabilities in the Statements of Conditions in this Form 10-Q.
Deposits
The FHLBNY determines estimated fair values of deposits by calculating the present value of expected future cash flows from the deposits. The discount rates used in these calculations are the current cost of deposits with similar terms.
Consolidated obligations
The FHLBNY estimates fair values based on the cost of raising comparable term debt and prices its bonds and discount notes off of the current consolidated obligations market curve, which has a daily active market. The fair values of consolidated obligation debt (bonds and discount notes) are computed using a standard option valuation model using market based and observable inputs: (1) consolidated obligation debt curve (the “CO Curve”) that is available to the public and published by the Office of Finance, and (2) LIBOR curve and volatilities. Model adjustments that are not observable are not considered significant.
Mandatorily redeemable capital stock
The FHLBNY considers the fair value of capital subject to mandatory redemption, as the redemption value of the stock, which is generally par plus accrued estimated dividend. The FHLBNY has a cooperative structure. Stock can only be acquired by members at par value and redeemed at par value. Stock is not traded publicly and no market mechanism exists for the exchange of stock outside the cooperative structure.
Note 17. Commitments and Contingencies.
Consolidated obligations — Joint and several liability. Although the FHLBNY is primarily liable only for its portion of consolidated obligations (i.e. those consolidated obligations issued on its behalf and those that have been transferred/assumed from other FHLBanks), it is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all of the consolidated obligations issued by the FHLBanks.
The Finance Agency, in its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligation, regardless of whether there has been a default by the FHLBank having primary liability. To the extent that a FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank shall be entitled to reimbursement from the FHLBank with primary liability. The FHLBank with primary liability would have a corresponding liability to reimburse the FHLBank providing assistance to the extent of such payment and other associated costs (including interest to be determined by the Finance Agency). As discussed more fully in Note 20 to the audited financial statements filed on March 25, 2011, the FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another FHLBank in the future. Accordingly, the FHLBNY has not recognized a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations at March 31, 2011 and December 31, 2010.

 

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However, if the Finance Agency determines that the primarily liable FHLBank is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that the Finance Agency may determine. No FHLBank has ever failed to make a payment on a consolidated obligation for which it was the primary obligor; as a result, the regulatory provisions for directing other FHLBanks to make payments on behalf of another FHLBank or allocating the liability among other FHLBanks have never been invoked. Consequently, the Bank has no means to determine how the Finance Agency might allocate among the other FHLBanks the obligations of a FHLBank that is unable to pay consolidated obligations for which such FHLBank is primarily liable. In the event the Bank is holding a consolidated obligation as an investment for which the Finance Agency would allocate liability among the 12 FHLBanks, the Bank might be exposed to a credit loss to the extent of its share of the assigned liability for that particular consolidated obligation. If principal or interest on any consolidated obligation issued by the FHLBank System is not paid in full when due, the defaulting FHLBank may not pay dividends to, or repurchase shares of stock from, any shareholder of the defaulting FHLBank. The FHLBNY did not hold any consolidated obligations of another FHLBank as investments at March 31, 2011 and December 31, 2010.
If the principal or interest on any consolidated obligation issued on behalf of the FHLBNY is not paid in full when due, the FHLBNY may not pay dividends to, or redeem or repurchase shares of stock from, any member or non-member stockholder until the Finance Agency approves the FHLBNY’s consolidated obligation payment plan or another remedy, and until the FHLBNY pays all the interest and principal currently due under all its consolidated obligations.
Because the FHLBNY is jointly and severally liable for debt issued by other FHLBanks, the FHLBNY has not identified consolidated obligations outstanding by primary obligor. The FHLBNY does not believe that the identification of particular banks as the primary obligors on these consolidated obligations is relevant, because all FHLBanks are jointly and severally obligated to pay all consolidated obligations. The identity of the primary obligor does not affect the FHLBNY’s investment decisions. The FHLBNY’s ownership of consolidated obligations in which other FHLBanks are primary obligors does not affect the FHLBNY’s “guarantee” on consolidated obligations, as there is no automatic legal right of offset. Even if the FHLBNY were to claim an “offset,” the FHLBNY would still be jointly and severally obligated for any debt service shortfall caused by the FHLBanks’ failure to pay. The par amounts of the outstanding consolidated obligations of all 12 FHLBanks were $0.8 trillion at March 31, 2011 and December 31, 2010.
Under the provisions of accounting standard for guarantees, the Bank would have been required to recognize the fair value of the FHLBNY’s joint and several liability for all the consolidated obligations, as discussed above. However, the FHLBNY considers the joint and several liabilities as similar to a related party guarantee, which meets the scope exception under the accounting standard for guarantees. Accordingly, the FHLBNY has not recognized the fair value of a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations at March 31, 2011 and December 31, 2010.
Standby letters of credit are executed for a fee on behalf of members to facilitate residential housing, community lending, and members’ asset/liability management or to provide liquidity. A standby letter of credit is a financing arrangement between the FHLBNY and its member. Members assume an unconditional obligation to reimburse the FHLBNY for value given by the FHLBNY to the beneficiary under the terms of the standby letter of credit. The FHLBNY may, in its discretion, permit the member to finance repayment of their obligation by receiving a collateralized advance. Outstanding standby letters of credit were approximately $2.4 billion and $2.3 billion as of March 31, 2011 and December 31, 2010, and had original terms of up to 15 years, with a final expiration in 2019. Standby letters of credit are fully collateralized. Unearned fees on standby letters of credit are recorded in Other liabilities, and were not significant as of March 31, 2011 and December 31, 2010. Based on management’s credit analyses and collateral requirements, the FHLBNY does not deem it necessary to have any provision for credit losses on these commitments and letters of credit.
Under the MPF program, the Bank was unconditionally obligated to purchase $25.2 million and $30.0 million of mortgage loans at March 31, 2011 and December 31, 2010. Commitments are generally for periods not to exceed 45 business days. Such commitments were recorded as derivatives at their fair value under the accounting standards for derivatives and hedging. In addition, the FHLBNY had entered into conditional agreements under “Master Commitments” with its members in the MPF program to purchase mortgage loans in aggregate of $785.5 million and $630.6 million as of March 31, 2011 and December 31, 2010.
The FHLBNY executes derivatives with major financial institutions and enters into bilateral collateral agreements. When counterparties are exposed, the Bank would typically pledge cash collateral to mitigate the counterparty’s credit exposure. To mitigate the counterparties’ exposures, the FHLBNY deposited $1.9 billion and $2.7 billion in cash with derivative counterparties as pledged collateral at March 31, 2011 and December 31, 2010, and these amounts were reported as a deduction to Derivative liabilities.
The FHLBNY was also exposed to credit risk associated with outstanding derivative transactions measured by the replacement cost of derivatives in net fair value gain positions of $25.0 million and $22.0 million at March 31, 2011 and December 31, 2010. At March 31, 2011 and December 31, 2010, counterparties had deposited $71.1 million and $9.3 million in cash as collateral to mitigate such an exposure.

 

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Future benefit payments for the BEP and the postretirement health benefit plan are not considered significant. The Bank expects to fund $9.9 million over the next 12 months towards the Defined Benefit Plan, a non-contributory pension plan.
The following table summarizes contractual obligations and contingencies as of March 31, 2011 (in thousands):
                                         
    March 31, 2011  
    Payments Due or Expiration Terms by Period  
    Less Than     One Year     Greater Than Three     Greater Than        
    One Year     to Three Years     Years to Five Years     Five Years     Total  
Contractual Obligations
                                       
Consolidated obligations-bonds at par 1
  $ 32,657,200     $ 23,715,475     $ 7,837,380     $ 3,695,015     $ 67,905,070  
Mandatorily redeemable capital stock 1
    37,418       4,959       459       16,290       59,126  
Premises (lease obligations) 2
    3,060       5,997       4,674       3,506       17,237  
 
                             
 
                                       
Total contractual obligations
    32,697,678       23,726,431       7,842,513       3,714,811       67,981,433  
 
                             
 
                                       
Other commitments
                                       
Standby letters of credit
    2,366,166       19,359       41,777       3,861       2,431,163  
Consolidated obligations-bonds/ discount notes traded not settled
    4,522,000                         4,522,000  
Commitments to fund additional advances
    16,000                         16,000  
Open delivery commitments (MPF)
    25,197                         25,197  
 
                             
 
                                       
Total other commitments
    6,929,363       19,359       41,777       3,861       6,994,360  
 
                             
 
                                       
Total obligations and commitments
  $ 39,627,041     $ 23,745,790     $ 7,884,290     $ 3,718,672     $ 74,975,793  
 
                             
1   Callable bonds contain exercise date or a series of exercise dates that may result in a shorter redemption period. Mandatorily redeemable capital stock is categorized by the dates at which the corresponding advances outstanding mature. Excess capital stock is redeemed at that time, and hence, these dates better represent the related commitments than the put dates associated with capital stock, under which stock may not be redeemed until the later of five years from the date the member becomes a nonmember or the related advance matures.
 
2   Immaterial amount of commitments for equipment leases are not included.
The FHLBNY does not anticipate any credit losses from its off-balance sheet commitments and accordingly no provision for losses is required.
Impact of the bankruptcy of Lehman Brothers
On September 15, 2008, Lehman Brothers Holdings, Inc. (“LBHI”), the parent company of Lehman Brothers Special Financing Inc. (“LBSF”) and a guarantor of LBSF’s obligations, filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. LBSF filed for protection under Chapter 11 in the same court on October 3, 2008. LBSF was a counterparty to FHLBNY on multiple derivative transactions under an International Swap Dealers Association, Inc. master agreement with a total notional amount of $16.5 billion at the time of termination of the Bank’s derivative transactions with LBSF. The net amount that was due to the Bank after giving effect to obligations that were due LBSF was approximately $65 million. The FHLBNY filed proofs of claim in the amount of approximately $65 million as creditors of LBSF and LBHI in connection with the bankruptcy proceedings. The Bank fully reserved the LBSF receivables as the bankruptcies of LBHI and LBSF make the timing and the amount of any recovery uncertain.
As previously reported, the Bank received a Derivatives ADR Notice from LBSF dated July 23, 2010 making a Demand as of the date of the Notice of approximately $268 million owed to LBSF by the Bank. Subsequently, in accordance with the Alternative Dispute Resolution Procedure Order entered by the Bankruptcy Court dated September 17, 2009 (“Order”), the Bank responded to LBSF on August 23, 2010, denying LBSF’s Demand. LBSF served a reply on September 7, 2010, effectively reiterating its position. The mediation being conducted pursuant to the Order commenced on December 8, 2010 and concluded without settlement on March 17, 2011. Pursuant to the Order, positions taken by the parties in the ADR process are confidential.
While the Bank believes that LBSF’s position is without merit, the amount the Bank actually recovers or pays will ultimately be decided in the course of the bankruptcy proceedings.
Note 18. Related Party Transactions.
The FHLBNY is a cooperative and the members own almost all of the stock of the Bank. Any stock not owned by members is held by former members. The majority of the members of the Board of Directors of the FHLBNY are elected by and from the membership. The FHLBNY conducts its advances business almost exclusively with members. The Bank considers its transactions with its members and non-member stockholders as related party transactions in addition to transactions with other FHLBanks, the Office of Finance, and the Finance Agency. All transactions with all members, including those whose officers may serve as directors of the FHLBNY, are at terms that are no more favorable than comparable transactions with other members. The FHLBNY may from time to time borrow or sell overnight and term Federal funds at market rates to members.

 

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Debt Transfers
For the three months ended March 31, 2011 and 2010, the Bank did not assume debt from another FHLBank. The Bank transferred $150.0 million (par amounts) to another FHLBank for the three months ended March 31, 2011. No bonds were transferred by the FHLBNY to another FHLBank in the same period in 2010.
At trade date, the transferring bank notifies the Office of Finance of a change in primary obligor for the transferred debt.
Advances sold or transferred
No advances were transferred/sold to the FHLBNY or from the FHLBNY to another FHLBank in any periods in this report.
MPF Program
In the MPF program, the FHLBNY may participate out certain portions of its purchases of mortgage loans from its members. Transactions are at market rates. Loans participated by the FHLBNY to the FHLBank of Chicago was $75.0 million and $81.2 million at March 31, 2011 and December 31, 2010 on a cumulative basis. Since 2004, the FHLBNY has not shared its purchases with the FHLBank of Chicago. Fees paid to the FHLBank of Chicago were $0.1 million for the three months ended March 31, 2011 and 2010.
Mortgage-backed Securities
No mortgage-backed securities were acquired from other FHLBanks during the periods in this report.
Intermediation
Notional amounts of $550.0 million were outstanding both at March 31, 2011 and December 31, 2010 in which the FHLBNY acted as an intermediary to sell derivatives to members. The notionals include offsetting identical transactions with unrelated derivatives counterparties. Net fair value exposures of these transactions at March 31, 2011 and December 31, 2010 were not material. The intermediated derivative transactions were fully collateralized.
Loans to other Federal Home Loan Banks
In the three months ended March 31, 2011, FHLBNY extended one overnight loan for a total of $100.0 million to another FHLBank. For the three months ended March 31, 2010, the FHLBNY extended one overnight loan for a total of $27.0 million to another FHLBank. Generally, loans made to other FHLBanks are uncollateralized. Interest income from such loans was not significant in any period in this report.
The following tables summarize outstanding balances with related parties at March 31, 2011 and December 31, 2010, and transactions for the three months ended March 31, 2011 and 2010 (in thousands):
Related Party: Outstanding Assets, Liabilities and Capital
                                 
    March 31, 2011     December 31, 2010  
    Related     Unrelated     Related     Unrelated  
Assets
                               
Cash and due from banks
  $     $ 2,953,801     $     $ 660,873  
Federal funds sold
          5,093,000             4,988,000  
Available-for-sale securities
          3,719,024             3,990,082  
Held-to-maturity securities
                               
Long-term securities
          8,042,487             7,761,192  
Advances
    75,487,377             81,200,336        
Mortgage loans 1
          1,270,891             1,265,804  
Accrued interest receivable
    220,672       29,782       256,617       30,718  
Premises, software, and equipment
          14,919             14,932  
Derivative assets 2
          24,964             22,010  
Other assets 3
    175       16,742       113       21,393  
 
                       
 
                               
Total assets
  $ 75,708,224     $ 21,165,610     $ 81,457,066     $ 18,755,004  
 
                       
 
                               
Liabilities and capital
                               
Deposits
  $ 2,512,631     $     $ 2,454,480     $  
Consolidated obligations
          88,037,140             91,134,079  
Mandatorily redeemable capital stock
    59,126             63,219        
Accrued interest payable
    5       230,104       10       197,256  
Affordable Housing Program 4
    135,131             138,365        
Payable to REFCORP
          18,735             21,617  
Derivative liabilities 2
          839,710             954,898  
Other liabilities 5
    48,395       49,830       49,484       54,293  
 
                       
 
                               
Total liabilities
  $ 2,755,288     $ 89,175,519     $ 2,705,558     $ 92,362,143  
 
                       
 
                               
Capital
    4,943,027             5,144,369        
 
                       
 
                               
Total liabilities and capital
  $ 7,698,315     $ 89,175,519     $ 7,849,927     $ 92,362,143  
 
                       
1   Includes insignificant amounts of mortgage loans purchased from members of another FHLBank.
 
2   Derivative assets and liabilities include insignificant fair values due to intermediation activities on behalf of members.
 
3   Includes insignificant amounts of miscellaneous assets that are considered related party.
 
4   Represents funds not yet disbursed to eligible programs.
 
5   Related column includes member pass-through reserves at the Federal Reserve Bank.

 

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Related Party: Income and Expense transactions
                                 
    Three months ended  
    March 31, 2011     March 31, 2010  
    Related     Unrelated     Related     Unrelated  
Interest income
                               
Advances
  $ 158,696     $     $ 149,640     $  
Interest-bearing deposits 1
          966             830  
Federal funds sold
          2,546             1,543  
Available-for-sale securities
          8,639             5,764  
Held-to-maturity securities
                               
Long-term securities
          71,056             98,634  
Mortgage loans 2
          15,486             16,741  
 
                       
 
                               
Total interest income
  $ 158,696     $ 98,693     $ 149,640     $ 123,512  
 
                       
 
                               
Interest expense
                               
Consolidated obligations
  $     $ 122,093     $     $ 164,570  
Deposits
    470             892        
Mandatorily redeemable capital stock
    744             1,495        
Cash collateral held and other borrowings
          9              
 
                       
 
                               
Total interest expense
  $ 1,214     $ 122,102     $ 2,387     $ 164,570  
 
                       
 
                               
Service fees and other
  $ 1,256     $     $ 1,045     $  
 
                       
1   Includes de minimis amounts of interest income from MPF service provider.
 
2   Includes de minimis amounts of mortgage interest income from loans purchased from members of another FHLBank.
Note 19. Segment Information and Concentration.
The FHLBNY manages its operations as a single business segment. Management and the FHLBNY’s Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance. Advances to large members constitute a significant percentage of FHLBNY’s advance portfolio and its source of revenues.
The FHLBNY has a unique cooperative structure and is owned by member institutions located within a defined geographic district. The Bank’s market is the same as its membership district This includes New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. Institutions that are members of the FHLBNY must have their principal places of business within this market, but may also operate elsewhere.
The FHLBNY’s primary business is making low-cost, collateralized loans, known as “advances,” to its members. Members use advances as a source of funding to supplement their deposit-gathering activities. As a cooperative, the FHLBNY prices advances at minimal net spreads above the cost of its funding to deliver maximum value to members. Advances to large members constitute a significant percentage of FHLBNY’s advance portfolio and its source of revenues.
The FHLBNY’s total assets and capital could significantly decrease if one or more large members were to withdraw from membership or decrease business with the Bank. Members might withdraw or reduce their business as a result of consolidating with an institution that was a member of another FHLBank, or for other reasons. The FHLBNY has considered the impact of losing one or more large members. In general, a withdrawing member would be required to repay all indebtedness prior to the redemption of its capital stock. Under current conditions, the FHLBNY does not expect the loss of a large member to impair its operations, since the FHLBank Act of 1999 does not allow the FHLBNY to redeem the capital of an existing member if the redemption would cause the FHLBNY to fall below its capital requirements. Consequently, the loss of a large member should not result in an inadequate capital position for the FHLBNY. However, such an event could reduce the amount of capital that the FHLBNY has available for continued growth. This could have various ramifications for the FHLBNY, including a possible reduction in net income and dividends, and a lower return on capital stock for remaining members.

 

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The top ten advance holders at March 31, 2011, December 31, 2010 and March 31, 2010 and associated interest income for the periods then ended are summarized as follows (dollars in thousands):
                                 
    March 31, 2011  
                    Percentage of        
            Par     Total Par Value     Three Months  
    City   State   Advances     of Advances     Interest Income  
 
                               
Hudson City Savings Bank, FSB*
  Paramus   NJ   $ 15,525,000       21.5 %   $ 158,066  
Metropolitan Life Insurance Company
  New York   NY     12,155,000       16.8       67,672  
New York Community Bank*
  Westbury   NY     7,293,162       10.1       75,256  
MetLife Bank, N.A.
  Convent Station   NJ     4,284,500       5.9       19,864  
The Prudential Insurance Co. of America
  Newark   NJ     2,500,000       3.5       15,027  
Manufacturers and Traders Trust Company
  Buffalo   NY     2,257,875       3.1       4,505  
Valley National Bank
  Wayne   NJ     2,194,500       3.0       23,987  
Astoria Federal Savings and Loan Assn.
  Lake Success   NY     2,099,000       2.9       19,141  
Investors Savings Bank
  Short Hills   NJ     1,677,007       2.3       11,431  
New York Life Insurance Company
  New York   NY     1,500,000       2.1       3,433  
 
                         
Total
          $ 51,486,044       71.2 %   $ 398,382  
 
                         
*   Officer of member bank also served on the Board of Directors of the FHLBNY.
                                 
    December 31, 2010  
                    Percentage of        
            Par     Total Par Value     Twelve Months  
    City   State   Advances     of Advances     Interest Income  
 
                               
Hudson City Savings Bank, FSB*
  Paramus   NJ   $ 17,025,000       22.1 %   $ 705,743  
Metropolitan Life Insurance Company
  New York   NY     12,555,000       16.3       294,526  
New York Community Bank*
  Westbury   NY     7,793,165       10.1       307,102  
MetLife Bank, N.A.
  Convent Station   NJ     3,789,500       4.9       61,036  
Manufacturers and Traders Trust Company
  Buffalo   NY     2,758,000       3.6       42,979  
The Prudential Insurance Co. of America
  Newark   NJ     2,500,000       3.3       77,544  
Astoria Federal Savings and Loan Assn.
  Lake Success   NY     2,391,000       3.1       107,917  
Valley National Bank
  Wayne   NJ     2,310,500       3.0       98,680  
New York Life Insurance Company
  New York   NY     1,500,000       2.0       14,678  
First Niagara Bank, National Association
  Buffalo   NY     1,473,493       1.9       24,911  
 
                         
Total
          $ 54,095,658       70.3 %   $ 1,735,116  
 
                         
*   At December 31, 2010, officer of member bank also served on the Board of Directors of the FHLBNY.
                                 
    March 31, 2010  
                    Percentage of        
            Par     Total Par Value     Three Months  
    City   State   Advances     of Advances     Interest Income  
 
                               
Hudson City Savings Bank, FSB*
  Paramus   NJ   $ 17,275,000       20.3 %   $ 174,759  
Metropolitan Life Insurance Company
  New York   NY     13,555,000       15.9       72,407  
New York Community Bank*
  Westbury   NY     7,343,172       8.6       75,913  
Manufacturers and Traders Trust Company
  Buffalo   NY     4,755,523       5.6       11,754  
The Prudential Insurance Co. of America
  Newark   NJ     3,500,000       4.1       21,577  
Astoria Federal Savings and Loan Assn.
  Lake Success   NY     2,984,000       3.5       28,487  
Valley National Bank
  Wayne   NJ     2,271,500       2.7       24,716  
Doral Bank
  San Juan   PR     2,119,420       2.5       19,258  
New York Life Insurance Company
  New York   NY     2,000,000       2.4       3,075  
MetLife Bank, N.A.
  Convent Station   NJ     1,894,500       2.2       11,693  
 
                         
Total
          $ 57,698,115       67.8 %   $ 443,639  
 
                         
*   At March 31, 2010, officer of member bank also served on the Board of Directors of the FHLBNY.

 

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The following table summarizes capital stock held by members who were beneficial owners of more than 5 percent of the FHLBNY’s outstanding capital stock as of March 31, 2011 and December 31, 2010 (shares in thousands):
                     
        Number     Percent  
    March 31, 2011   of Shares     of Total  
Name of Beneficial Owner   Principal Executive Office Address   Owned     Capital Stock  
 
Hudson City Savings Bank, FSB*
  West 80 Century Road, Paramus, NJ 07652     8,044       18.35 %
Metropolitan Life Insurance Company
  200 Park Avenue, New York, NY 10166     6,855       15.64  
New York Community Bank*
  615 Merrick Avenue, Westbury, NY 11590-6644     3,868       8.82  
 
               
 
                   
 
        18,767       42.81 %
 
               
                     
        Number     Percent  
    December 31, 2010   of Shares     of Total  
Name of Beneficial Owner   Principal Executive Office Address   Owned     Capital Stock  
 
Hudson City Savings Bank, FSB*
  West 80 Century Road, Paramus, NJ 07652     8,719       18.99 %
Metropolitan Life Insurance Company
  200 Park Avenue, New York, NY 10166     7,035       15.32  
New York Community Bank*
  615 Merrick Avenue, Westbury, NY 11590-6644     4,093       8.91  
 
               
 
                   
 
        19,847       43.22 %
 
               
*   Officer of member bank also served on the Board of Directors of the FHLBNY.
Note 20. Subsequent Events.
Under the final guidance issued by the FASB, subsequent events for the FHLBNY are events or transactions that occur after the balance sheet date but before financial statements are issued. There are two types of subsequent events:
a. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (that is, recognized subsequent events).
b. The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date (that is, non-recognized subsequent events).
The FHLBNY has evaluated subsequent events through the date of this report and no significant subsequent events were identified.

 

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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Statements contained in this report, including statements describing the objectives, projections, estimates, or predictions of the Federal Home Loan Bank of New York (“FHLBNY” or “Bank”), may be “forward-looking statements.” All statements other than statements of historical fact are statements that could potentially be forward-looking statements. These statements may use forward-looking terminology, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or other variations on these terms or their negatives. These statements may involve matters pertaining to, but not limited to: projections regarding revenue, income, earnings, capital expenditures, dividends, the capital structure and other financial items; statements of plans or objectives for future operations; expectations of future economic performance; and statements of assumptions underlying certain of the foregoing types of statements.
The Bank cautions that, by their nature, forward-looking statements involve risks or uncertainties, and actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, readers are cautioned not to place undue reliance on such statements, which are current only as of the date thereof. The Bank will not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Bank.
These forward-looking statements may not be realized due to a variety of risks and uncertainties including, but not limited to risks and uncertainties relating to economic, competitive, governmental, technological and marketing factors, as well as other factors identified in the Bank’s filings with the Securities and Exchange Commission.

 

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Organization of Management’s Discussion and Analysis (“MD&A”).
The FHLBNY’s MD&A is designed to provide information that will assist the readers in better understanding the FHLBNY’s financial statements, the changes in key items in the Bank’s financial statements from year to year, the primary factors driving those changes as well as how accounting principles affect the FHLBNY’s financial statements. The MD&A is organized as follows:
         
    Page  
 
    49  
 
       
    49  
 
       
    51  
 
       
    55  
 
       
    55  
 
       
    56  
 
       
    57  
 
       
    58  
 
       
    62  
 
       
    64  
 
       
    66  
 
       
    68  
 
       
    70  
 
       
    75  
 
       
    82  
 
       
    84  
 
       
    90  
 
       
    92  
 
       
    96  
 
       
    98  
MD&A TABLE REFERENCE
             
Table(s)   Description   Page(s)  
1.1 – 1.15
  Result of Operations     55 – 66  
2.1 – 2.2
  Assessments     67  
3.1 – 3.3
  Financial Condition     68 – 69  
4.1 – 4.10
  Advances     70 – 75  
5.1 – 5.10
  Investments     76 – 81  
6.1 – 6.3
  Mortgage Loans     82 – 83  
7.1 – 7.10
  Consolidated Obligations     85 – 89  
8.1 – 8.2
  Capital     90 – 91  
9.1 – 9.5
  Derivatives     93 – 95  
10.1 – 10.4
  Liquidity     96 – 98  

 

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